Correlation Between American Funds and Gateway Equity
Can any of the company-specific risk be diversified away by investing in both American Funds and Gateway Equity 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 Gateway Equity into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds Conservative and Gateway Equity Call, you can compare the effects of market volatilities on American Funds and Gateway Equity 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 Gateway Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Gateway Equity.
Diversification Opportunities for American Funds and Gateway Equity
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Gateway is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Conservative and Gateway Equity Call in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gateway Equity Call 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 Conservative are associated (or correlated) with Gateway Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gateway Equity Call has no effect on the direction of American Funds i.e., American Funds and Gateway Equity go up and down completely randomly.
Pair Corralation between American Funds and Gateway Equity
Assuming the 90 days horizon American Funds is expected to generate 1.79 times less return on investment than Gateway Equity. But when comparing it to its historical volatility, American Funds Conservative is 1.43 times less risky than Gateway Equity. It trades about 0.3 of its potential returns per unit of risk. Gateway Equity Call is currently generating about 0.38 of returns per unit of risk over similar time horizon. If you would invest 1,946 in Gateway Equity Call on September 2, 2024 and sell it today you would earn a total of 70.00 from holding Gateway Equity Call or generate 3.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds Conservative vs. Gateway Equity Call
Performance |
| Timeline |
| American Funds Conse |
| Gateway Equity Call |
American Funds and Gateway Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Gateway Equity
The main advantage of trading using opposite American Funds and Gateway Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Gateway Equity 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 Gateway Equity will offset losses from the drop in Gateway Equity's long position.| American Funds vs. Pace Large Growth | American Funds vs. Alternative Asset Allocation | American Funds vs. Old Westbury Large | American Funds vs. T Rowe Price |
| Gateway Equity vs. Fidelity Advisor Energy | Gateway Equity vs. Energy Services Fund | Gateway Equity vs. Firsthand Alternative Energy | Gateway Equity vs. Franklin Natural Resources |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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