Correlation Between American Funds and State Farm
Can any of the company-specific risk be diversified away by investing in both American Funds and State Farm 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 State Farm 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 State Farm Growth, you can compare the effects of market volatilities on American Funds and State Farm 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 State Farm. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and State Farm.
Diversification Opportunities for American Funds and State Farm
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and State is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Conservative and State Farm Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Farm Growth 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 State Farm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Farm Growth has no effect on the direction of American Funds i.e., American Funds and State Farm go up and down completely randomly.
Pair Corralation between American Funds and State Farm
Assuming the 90 days horizon American Funds is expected to generate 12.34 times less return on investment than State Farm. But when comparing it to its historical volatility, American Funds Conservative is 1.87 times less risky than State Farm. It trades about 0.03 of its potential returns per unit of risk. State Farm Growth is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 12,789 in State Farm Growth on August 29, 2024 and sell it today you would earn a total of 367.00 from holding State Farm Growth or generate 2.87% 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. State Farm Growth
Performance |
| Timeline |
| American Funds Conse |
| State Farm Growth |
American Funds and State Farm Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and State Farm
The main advantage of trading using opposite American Funds and State Farm positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, State Farm 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 State Farm will offset losses from the drop in State Farm's long position.| American Funds vs. Income Fund Of | American Funds vs. New World Fund | American Funds vs. American Mutual Fund | American Funds vs. American Mutual Fund |
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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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