Correlation Between American Balanced and Pax Balanced
Can any of the company-specific risk be diversified away by investing in both American Balanced and Pax Balanced at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining American Balanced and Pax Balanced into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Balanced Fund and Pax Balanced Fund, you can compare the effects of market volatilities on American Balanced and Pax Balanced and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in American Balanced with a short position of Pax Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Balanced and Pax Balanced.
Diversification Opportunities for American Balanced and Pax Balanced
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Pax is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced Fund and Pax Balanced Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pax Balanced and American Balanced is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on American Balanced Fund are associated (or correlated) with Pax Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pax Balanced has no effect on the direction of American Balanced i.e., American Balanced and Pax Balanced go up and down completely randomly.
Pair Corralation between American Balanced and Pax Balanced
Assuming the 90 days horizon American Balanced Fund is expected to generate 0.9 times more return on investment than Pax Balanced. However, American Balanced Fund is 1.11 times less risky than Pax Balanced. It trades about 0.1 of its potential returns per unit of risk. Pax Balanced Fund is currently generating about 0.05 per unit of risk. If you would invest 2,827 in American Balanced Fund on August 28, 2024 and sell it today you would earn a total of 837.00 from holding American Balanced Fund or generate 29.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Balanced Fund vs. Pax Balanced Fund
Performance |
| Timeline |
| American Balanced |
| Pax Balanced |
American Balanced and Pax Balanced Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Balanced and Pax Balanced
The main advantage of trading using opposite American Balanced and Pax Balanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Balanced position performs unexpectedly, Pax Balanced can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Pax Balanced will offset losses from the drop in Pax Balanced's long position.| American Balanced vs. Income Fund Of | American Balanced vs. Capital Income Builder | American Balanced vs. Capital World Growth | American Balanced vs. Growth Fund Of |
| Pax Balanced vs. Pax Esg Beta | Pax Balanced vs. Pax High Yield | Pax Balanced vs. Domini Impact Equity | Pax Balanced vs. Neuberger Berman Socially |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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