Correlation Between American Balanced and Plumb Balanced
Can any of the company-specific risk be diversified away by investing in both American Balanced and Plumb 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 Plumb 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 Plumb Balanced, you can compare the effects of market volatilities on American Balanced and Plumb 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 Plumb Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Balanced and Plumb Balanced.
Diversification Opportunities for American Balanced and Plumb Balanced
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between American and Plumb is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced Fund and Plumb Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plumb 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 Plumb Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plumb Balanced has no effect on the direction of American Balanced i.e., American Balanced and Plumb Balanced go up and down completely randomly.
Pair Corralation between American Balanced and Plumb Balanced
Assuming the 90 days horizon American Balanced Fund is expected to generate 0.79 times more return on investment than Plumb Balanced. However, American Balanced Fund is 1.27 times less risky than Plumb Balanced. It trades about 0.14 of its potential returns per unit of risk. Plumb Balanced is currently generating about 0.09 per unit of risk. If you would invest 3,350 in American Balanced Fund on September 2, 2024 and sell it today you would earn a total of 332.00 from holding American Balanced Fund or generate 9.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Balanced Fund vs. Plumb Balanced
Performance |
| Timeline |
| American Balanced |
| Plumb Balanced |
American Balanced and Plumb Balanced Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Balanced and Plumb Balanced
The main advantage of trading using opposite American Balanced and Plumb Balanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Balanced position performs unexpectedly, Plumb 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 Plumb Balanced will offset losses from the drop in Plumb Balanced's long position.| American Balanced vs. T Rowe Price | American Balanced vs. Americafirst Large Cap | American Balanced vs. John Hancock Investment | American Balanced vs. Fundamental Large Cap |
| Plumb Balanced vs. Value Line Asset | Plumb Balanced vs. Sit Balanced Fund | Plumb Balanced vs. Performance Trust Strategic | Plumb Balanced vs. Columbia Balanced Fund |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
Other Complementary Tools
| Positions Ratings Determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance | |
| Idea Analyzer Analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas | |
| Content Syndication Quickly integrate customizable finance content to your own investment portal | |
| Premium Stories Follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope | |
| Analyst Advice Analyst recommendations and target price estimates broken down by several categories |