Correlation Between American Funds and Long Term
Can any of the company-specific risk be diversified away by investing in both American Funds and Long Term 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 Long Term 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 The Long Term, you can compare the effects of market volatilities on American Funds and Long Term 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 Long Term. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Long Term.
Diversification Opportunities for American Funds and Long Term
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Long is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding American Funds New and The Long Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Long Term 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 Long Term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Long Term has no effect on the direction of American Funds i.e., American Funds and Long Term go up and down completely randomly.
Pair Corralation between American Funds and Long Term
Assuming the 90 days horizon American Funds is expected to generate 1.45 times less return on investment than Long Term. But when comparing it to its historical volatility, American Funds New is 1.51 times less risky than Long Term. It trades about 0.08 of its potential returns per unit of risk. The Long Term is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 2,533 in The Long Term on September 12, 2024 and sell it today you would earn a total of 1,000.00 from holding The Long Term or generate 39.48% 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. The Long Term
Performance |
| Timeline |
| American Funds New |
| Long Term |
American Funds and Long Term Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Long Term
The main advantage of trading using opposite American Funds and Long Term positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Long Term 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 Long Term will offset losses from the drop in Long Term's long position.| American Funds vs. American Funds New | American Funds vs. New Perspective Fund | American Funds vs. New Perspective Fund | American Funds vs. New Perspective Fund |
| Long Term vs. Lord Abbett Convertible | Long Term vs. Gabelli Convertible And | Long Term vs. Rationalpier 88 Convertible | Long Term vs. Advent Claymore Convertible |
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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