Correlation Between Multimanager Lifestyle and American Funds
Can any of the company-specific risk be diversified away by investing in both Multimanager Lifestyle 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 Multimanager Lifestyle and American Funds 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 Funds Retirement, you can compare the effects of market volatilities on Multimanager Lifestyle 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 Multimanager Lifestyle with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Multimanager Lifestyle and American Funds.
Diversification Opportunities for Multimanager Lifestyle and American Funds
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Multimanager and American is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Multimanager Lifestyle Moderat and American Funds Retirement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Retirement 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 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 Retirement has no effect on the direction of Multimanager Lifestyle i.e., Multimanager Lifestyle and American Funds go up and down completely randomly.
Pair Corralation between Multimanager Lifestyle and American Funds
Assuming the 90 days horizon Multimanager Lifestyle is expected to generate 1.1 times less return on investment than American Funds. But when comparing it to its historical volatility, Multimanager Lifestyle Moderate is 1.06 times less risky than American Funds. It trades about 0.09 of its potential returns per unit of risk. American Funds Retirement is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 1,116 in American Funds Retirement on September 12, 2024 and sell it today you would earn a total of 167.00 from holding American Funds Retirement or generate 14.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Multimanager Lifestyle Moderat vs. American Funds Retirement
Performance |
| Timeline |
| Multimanager Lifestyle |
| American Funds Retirement |
Multimanager Lifestyle and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Multimanager Lifestyle and American Funds
The main advantage of trading using opposite Multimanager Lifestyle and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Multimanager Lifestyle 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.The idea behind Multimanager Lifestyle Moderate and American Funds Retirement 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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