Correlation Between American Funds and Sound Shore
Can any of the company-specific risk be diversified away by investing in both American Funds and Sound Shore 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 Sound Shore 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 Sound Shore Fund, you can compare the effects of market volatilities on American Funds and Sound Shore 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 Sound Shore. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Sound Shore.
Diversification Opportunities for American Funds and Sound Shore
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Sound is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding American Funds American and Sound Shore Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sound Shore Fund 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 Sound Shore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sound Shore Fund has no effect on the direction of American Funds i.e., American Funds and Sound Shore go up and down completely randomly.
Pair Corralation between American Funds and Sound Shore
Assuming the 90 days horizon American Funds American is expected to generate 0.51 times more return on investment than Sound Shore. However, American Funds American is 1.94 times less risky than Sound Shore. It trades about 0.06 of its potential returns per unit of risk. Sound Shore Fund is currently generating about 0.01 per unit of risk. If you would invest 4,732 in American Funds American on October 25, 2024 and sell it today you would earn a total of 961.00 from holding American Funds American or generate 20.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds American vs. Sound Shore Fund
Performance |
| Timeline |
| American Funds American |
| Sound Shore Fund |
American Funds and Sound Shore Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Sound Shore
The main advantage of trading using opposite American Funds and Sound Shore positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Sound Shore 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 Sound Shore will offset losses from the drop in Sound Shore's long position.| American Funds vs. Fidelity Sai Convertible | American Funds vs. Rationalpier 88 Convertible | American Funds vs. Lord Abbett Convertible | American Funds vs. Absolute Convertible Arbitrage |
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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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