Correlation Between Rational Defensive and American Balanced
Can any of the company-specific risk be diversified away by investing in both Rational Defensive and American Balanced 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 Rational Defensive and American Balanced into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Rational Defensive Growth and American Balanced Fund, you can compare the effects of market volatilities on Rational Defensive and American Balanced 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 Rational Defensive with a short position of American Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rational Defensive and American Balanced.
Diversification Opportunities for Rational Defensive and American Balanced
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Rational and American is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Rational Defensive Growth and American Balanced Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Balanced and Rational Defensive 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 Rational Defensive Growth are associated (or correlated) with American Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Balanced has no effect on the direction of Rational Defensive i.e., Rational Defensive and American Balanced go up and down completely randomly.
Pair Corralation between Rational Defensive and American Balanced
Assuming the 90 days horizon Rational Defensive Growth is expected to generate 1.8 times more return on investment than American Balanced. However, Rational Defensive is 1.8 times more volatile than American Balanced Fund. It trades about 0.35 of its potential returns per unit of risk. American Balanced Fund is currently generating about 0.06 per unit of risk. If you would invest 3,933 in Rational Defensive Growth on September 13, 2024 and sell it today you would earn a total of 196.00 from holding Rational Defensive Growth or generate 4.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Rational Defensive Growth vs. American Balanced Fund
Performance |
| Timeline |
| Rational Defensive Growth |
| American Balanced |
Rational Defensive and American Balanced Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rational Defensive and American Balanced
The main advantage of trading using opposite Rational Defensive and American Balanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rational Defensive position performs unexpectedly, American Balanced 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 American Balanced will offset losses from the drop in American Balanced's long position.| Rational Defensive vs. Transamerica Emerging Markets | Rational Defensive vs. Black Oak Emerging | Rational Defensive vs. Siit Emerging Markets | Rational Defensive vs. Origin Emerging Markets |
| American Balanced vs. Franklin High Yield | American Balanced vs. Morningstar Defensive Bond | American Balanced vs. Pace High Yield | American Balanced vs. Ambrus Core Bond |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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