Correlation Between Multimanager Lifestyle and American Beacon
Can any of the company-specific risk be diversified away by investing in both Multimanager Lifestyle and American Beacon 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 Multimanager Lifestyle and American Beacon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Multimanager Lifestyle Moderate and American Beacon Intl, you can compare the effects of market volatilities on Multimanager Lifestyle and American Beacon 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 Multimanager Lifestyle with a short position of American Beacon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Multimanager Lifestyle and American Beacon.
Diversification Opportunities for Multimanager Lifestyle and American Beacon
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between MULTIMANAGER and American is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Multimanager Lifestyle Moderat and American Beacon Intl in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Intl and Multimanager Lifestyle 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 Multimanager Lifestyle Moderate are associated (or correlated) with American Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Beacon Intl has no effect on the direction of Multimanager Lifestyle i.e., Multimanager Lifestyle and American Beacon go up and down completely randomly.
Pair Corralation between Multimanager Lifestyle and American Beacon
Assuming the 90 days horizon Multimanager Lifestyle Moderate is expected to generate 0.35 times more return on investment than American Beacon. However, Multimanager Lifestyle Moderate is 2.87 times less risky than American Beacon. It trades about 0.37 of its potential returns per unit of risk. American Beacon Intl is currently generating about -0.06 per unit of risk. If you would invest 1,244 in Multimanager Lifestyle Moderate on September 1, 2024 and sell it today you would earn a total of 29.00 from holding Multimanager Lifestyle Moderate or generate 2.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Multimanager Lifestyle Moderat vs. American Beacon Intl
Performance |
| Timeline |
| Multimanager Lifestyle |
| American Beacon Intl |
Multimanager Lifestyle and American Beacon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Multimanager Lifestyle and American Beacon
The main advantage of trading using opposite Multimanager Lifestyle and American Beacon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Multimanager Lifestyle position performs unexpectedly, American Beacon 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 Beacon will offset losses from the drop in American Beacon's long position.The idea behind Multimanager Lifestyle Moderate and American Beacon Intl pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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