Correlation Between American Funds and Large Cap
Can any of the company-specific risk be diversified away by investing in both American Funds and Large Cap 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 Large Cap 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 Large Cap Value, you can compare the effects of market volatilities on American Funds and Large Cap 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 Large Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Large Cap.
Diversification Opportunities for American Funds and Large Cap
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Large is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Conservative and Large Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap Value 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 Large Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap Value has no effect on the direction of American Funds i.e., American Funds and Large Cap go up and down completely randomly.
Pair Corralation between American Funds and Large Cap
Assuming the 90 days horizon American Funds is expected to generate 2.85 times less return on investment than Large Cap. But when comparing it to its historical volatility, American Funds Conservative is 2.57 times less risky than Large Cap. It trades about 0.13 of its potential returns per unit of risk. Large Cap Value is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 2,681 in Large Cap Value on September 2, 2024 and sell it today you would earn a total of 195.00 from holding Large Cap Value or generate 7.27% 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. Large Cap Value
Performance |
| Timeline |
| American Funds Conse |
| Large Cap Value |
American Funds and Large Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Large Cap
The main advantage of trading using opposite American Funds and Large Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Large Cap 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 Large Cap will offset losses from the drop in Large Cap'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 |
| Large Cap vs. Auer Growth Fund | Large Cap vs. Commonwealth Global Fund | Large Cap vs. Artisan Thematic Fund | Large Cap vs. Omni Small Cap Value |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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