Correlation Between Rational Defensive and American Funds
Can any of the company-specific risk be diversified away by investing in both Rational Defensive and American Funds 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 Funds 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 Funds 2040, you can compare the effects of market volatilities on Rational Defensive and American Funds 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 Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rational Defensive and American Funds.
Diversification Opportunities for Rational Defensive and American Funds
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Rational and American is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Rational Defensive Growth and American Funds 2040 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds 2040 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 Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds 2040 has no effect on the direction of Rational Defensive i.e., Rational Defensive and American Funds go up and down completely randomly.
Pair Corralation between Rational Defensive and American Funds
Assuming the 90 days horizon Rational Defensive Growth is expected to generate 1.63 times more return on investment than American Funds. However, Rational Defensive is 1.63 times more volatile than American Funds 2040. It trades about 0.42 of its potential returns per unit of risk. American Funds 2040 is currently generating about 0.26 per unit of risk. If you would invest 3,738 in Rational Defensive Growth on September 1, 2024 and sell it today you would earn a total of 289.00 from holding Rational Defensive Growth or generate 7.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Rational Defensive Growth vs. American Funds 2040
Performance |
| Timeline |
| Rational Defensive Growth |
| American Funds 2040 |
Rational Defensive and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rational Defensive and American Funds
The main advantage of trading using opposite Rational Defensive and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rational Defensive position performs unexpectedly, American Funds 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 Funds will offset losses from the drop in American Funds' long position.| Rational Defensive vs. Lord Abbett Convertible | Rational Defensive vs. Rationalpier 88 Convertible | Rational Defensive vs. Advent Claymore Convertible | Rational Defensive vs. The Gamco Global |
| American Funds vs. American Funds 2035 | American Funds vs. American Funds 2045 | American Funds vs. American Funds 2030 | American Funds vs. American Funds 2050 |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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