Correlation Between Financial Industries and American Funds
Can any of the company-specific risk be diversified away by investing in both Financial Industries 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 Financial Industries and American Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Financial Industries Fund and American Funds Retirement, you can compare the effects of market volatilities on Financial Industries 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 Financial Industries with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Industries and American Funds.
Diversification Opportunities for Financial Industries and American Funds
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Financial and American is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Financial Industries Fund and American Funds Retirement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Retirement and Financial Industries 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 Financial Industries 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 Retirement has no effect on the direction of Financial Industries i.e., Financial Industries and American Funds go up and down completely randomly.
Pair Corralation between Financial Industries and American Funds
Assuming the 90 days horizon Financial Industries Fund is expected to generate 3.42 times more return on investment than American Funds. However, Financial Industries is 3.42 times more volatile than American Funds Retirement. It trades about 0.05 of its potential returns per unit of risk. American Funds Retirement is currently generating about 0.09 per unit of risk. If you would invest 1,758 in Financial Industries Fund on October 26, 2024 and sell it today you would earn a total of 140.00 from holding Financial Industries Fund or generate 7.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Financial Industries Fund vs. American Funds Retirement
Performance |
| Timeline |
| Financial Industries |
| American Funds Retirement |
Financial Industries and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financial Industries and American Funds
The main advantage of trading using opposite Financial Industries and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Industries 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.| Financial Industries vs. Regional Bank Fund | Financial Industries vs. Regional Bank Fund | Financial Industries vs. Multimanager Lifestyle Moderate | Financial Industries vs. Multimanager Lifestyle Balanced |
| American Funds vs. Financials Ultrasector Profund | American Funds vs. Vanguard Financials Index | American Funds vs. Financial Industries Fund | American Funds vs. Blackstone Secured Lending |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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