Correlation Between American Funds and Large Company
Can any of the company-specific risk be diversified away by investing in both American Funds and Large Company 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 Large Company 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 Large Pany Value, you can compare the effects of market volatilities on American Funds and Large Company 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 Large Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Large Company.
Diversification Opportunities for American Funds and Large Company
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between American and Large is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding American Funds American and Large Pany Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Pany Value 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 Large Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Pany Value has no effect on the direction of American Funds i.e., American Funds and Large Company go up and down completely randomly.
Pair Corralation between American Funds and Large Company
Assuming the 90 days horizon American Funds is expected to generate 1.04 times less return on investment than Large Company. But when comparing it to its historical volatility, American Funds American is 1.27 times less risky than Large Company. It trades about 0.13 of its potential returns per unit of risk. Large Pany Value is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 1,858 in Large Pany Value on September 1, 2024 and sell it today you would earn a total of 570.00 from holding Large Pany Value or generate 30.68% 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. Large Pany Value
Performance |
| Timeline |
| American Funds American |
| Large Pany Value |
American Funds and Large Company Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Large Company
The main advantage of trading using opposite American Funds and Large Company positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Large Company 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 Large Company will offset losses from the drop in Large Company's long position.| American Funds vs. Vanguard Developed Markets | American Funds vs. Pnc Emerging Markets | American Funds vs. Transamerica Emerging Markets | American Funds vs. Ep Emerging Markets |
| Large Company vs. Wilshire Large | Large Company vs. Small Pany Value | Large Company vs. Small Pany Growth | Large Company vs. Wilshire 5000 Index |
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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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