Correlation Between American Funds and Wilshire 5000
Can any of the company-specific risk be diversified away by investing in both American Funds and Wilshire 5000 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 Wilshire 5000 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 Wilshire 5000 Index, you can compare the effects of market volatilities on American Funds and Wilshire 5000 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 Wilshire 5000. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Wilshire 5000.
Diversification Opportunities for American Funds and Wilshire 5000
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Wilshire is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Conservative and Wilshire 5000 Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wilshire 5000 Index 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 Wilshire 5000. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wilshire 5000 Index has no effect on the direction of American Funds i.e., American Funds and Wilshire 5000 go up and down completely randomly.
Pair Corralation between American Funds and Wilshire 5000
Assuming the 90 days horizon American Funds Conservative is expected to under-perform the Wilshire 5000. But the mutual fund apears to be less risky and, when comparing its historical volatility, American Funds Conservative is 2.5 times less risky than Wilshire 5000. The mutual fund trades about -0.06 of its potential returns per unit of risk. The Wilshire 5000 Index is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 3,277 in Wilshire 5000 Index on August 25, 2024 and sell it today you would earn a total of 164.00 from holding Wilshire 5000 Index or generate 5.0% 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. Wilshire 5000 Index
Performance |
| Timeline |
| American Funds Conse |
| Wilshire 5000 Index |
American Funds and Wilshire 5000 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Wilshire 5000
The main advantage of trading using opposite American Funds and Wilshire 5000 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Wilshire 5000 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 Wilshire 5000 will offset losses from the drop in Wilshire 5000's long position.| American Funds vs. Multisector Bond Sma | American Funds vs. Pace Municipal Fixed | American Funds vs. T Rowe Price | American Funds vs. Nuveen All American Municipal |
| Wilshire 5000 vs. Pioneer Diversified High | Wilshire 5000 vs. Delaware Limited Term Diversified | Wilshire 5000 vs. American Funds Conservative | Wilshire 5000 vs. Adams Diversified Equity |
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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