Correlation Between American Funds and Plumb Balanced
Can any of the company-specific risk be diversified away by investing in both American Funds 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 Funds 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 Funds American and Plumb Balanced, you can compare the effects of market volatilities on American Funds 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 Funds with a short position of Plumb Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Plumb Balanced.
Diversification Opportunities for American Funds 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 Funds American and Plumb Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plumb Balanced and American Funds 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 Funds American 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 Funds i.e., American Funds and Plumb Balanced go up and down completely randomly.
Pair Corralation between American Funds and Plumb Balanced
Assuming the 90 days horizon American Funds is expected to generate 2.26 times less return on investment than Plumb Balanced. But when comparing it to its historical volatility, American Funds American is 1.34 times less risky than Plumb Balanced. It trades about 0.12 of its potential returns per unit of risk. Plumb Balanced is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 3,951 in Plumb Balanced on August 31, 2024 and sell it today you would earn a total of 122.00 from holding Plumb Balanced or generate 3.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds American vs. Plumb Balanced
Performance |
| Timeline |
| American Funds American |
| Plumb Balanced |
American Funds and Plumb Balanced Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Plumb Balanced
The main advantage of trading using opposite American Funds and Plumb Balanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds 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 Funds vs. American Funds 2015 | American Funds vs. American Mutual Fund | American Funds vs. American Funds Income | American Funds vs. American Funds Preservation |
| Plumb Balanced vs. American Funds American | Plumb Balanced vs. American Funds American | Plumb Balanced vs. American Balanced | Plumb Balanced vs. American 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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