Correlation Between American Funds and Global Stock
Can any of the company-specific risk be diversified away by investing in both American Funds and Global Stock 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 Global Stock into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds New and Global Stock Fund, you can compare the effects of market volatilities on American Funds and Global Stock 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 Global Stock. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Global Stock.
Diversification Opportunities for American Funds and Global Stock
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Global is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding American Funds New and Global Stock Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Stock 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 New are associated (or correlated) with Global Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Stock has no effect on the direction of American Funds i.e., American Funds and Global Stock go up and down completely randomly.
Pair Corralation between American Funds and Global Stock
Assuming the 90 days horizon American Funds New is expected to generate 0.79 times more return on investment than Global Stock. However, American Funds New is 1.27 times less risky than Global Stock. It trades about 0.06 of its potential returns per unit of risk. Global Stock Fund is currently generating about 0.0 per unit of risk. If you would invest 5,079 in American Funds New on November 27, 2024 and sell it today you would earn a total of 1,367 from holding American Funds New or generate 26.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds New vs. Global Stock Fund
Performance |
| Timeline |
| American Funds New |
| Global Stock |
American Funds and Global Stock Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Global Stock
The main advantage of trading using opposite American Funds and Global Stock positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Global Stock 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 Global Stock will offset losses from the drop in Global Stock's long position.| American Funds vs. Advent Claymore Convertible | American Funds vs. Lord Abbett Vertible | American Funds vs. Invesco Vertible Securities | American Funds vs. Harbor Vertible Securities |
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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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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