Correlation Between Commonwealth Global and American Funds
Can any of the company-specific risk be diversified away by investing in both Commonwealth Global and American Funds 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 Commonwealth Global and American Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Commonwealth Global Fund and American Funds 2050, you can compare the effects of market volatilities on Commonwealth Global and American Funds 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 Commonwealth Global with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commonwealth Global and American Funds.
Diversification Opportunities for Commonwealth Global and American Funds
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Commonwealth and American is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Global Fund and American Funds 2050 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds 2050 and Commonwealth Global 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 Commonwealth Global Fund are associated (or correlated) with American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds 2050 has no effect on the direction of Commonwealth Global i.e., Commonwealth Global and American Funds go up and down completely randomly.
Pair Corralation between Commonwealth Global and American Funds
Assuming the 90 days horizon Commonwealth Global Fund is expected to under-perform the American Funds. But the mutual fund apears to be less risky and, when comparing its historical volatility, Commonwealth Global Fund is 1.18 times less risky than American Funds. The mutual fund trades about -0.45 of its potential returns per unit of risk. The American Funds 2050 is currently generating about -0.22 of returns per unit of risk over similar time horizon. If you would invest 2,218 in American Funds 2050 on October 9, 2024 and sell it today you would lose (109.00) from holding American Funds 2050 or give up 4.91% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Commonwealth Global Fund vs. American Funds 2050
Performance |
| Timeline |
| Commonwealth Global |
| American Funds 2050 |
Commonwealth Global and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Commonwealth Global and American Funds
The main advantage of trading using opposite Commonwealth Global and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commonwealth Global position performs unexpectedly, American Funds 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 American Funds will offset losses from the drop in American Funds' long position.The idea behind Commonwealth Global Fund and American Funds 2050 pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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