Correlation Between Global Technology and American Funds
Can any of the company-specific risk be diversified away by investing in both Global Technology 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 Global Technology and American Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Global Technology Portfolio and American Funds Retirement, you can compare the effects of market volatilities on Global Technology 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 Global Technology with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Technology and American Funds.
Diversification Opportunities for Global Technology and American Funds
0.49 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Global and American is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Global Technology Portfolio 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 Global Technology 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 Global Technology Portfolio 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 Global Technology i.e., Global Technology and American Funds go up and down completely randomly.
Pair Corralation between Global Technology and American Funds
Assuming the 90 days horizon Global Technology Portfolio is expected to generate 3.17 times more return on investment than American Funds. However, Global Technology is 3.17 times more volatile than American Funds Retirement. It trades about 0.11 of its potential returns per unit of risk. American Funds Retirement is currently generating about 0.09 per unit of risk. If you would invest 1,109 in Global Technology Portfolio on September 4, 2024 and sell it today you would earn a total of 1,030 from holding Global Technology Portfolio or generate 92.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Global Technology Portfolio vs. American Funds Retirement
Performance |
| Timeline |
| Global Technology |
| American Funds Retirement |
Global Technology and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Global Technology and American Funds
The main advantage of trading using opposite Global Technology and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Technology 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 Global Technology Portfolio 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.
| American Funds vs. Fidelity Advisor Technology | American Funds vs. Allianzgi Technology Fund | American Funds vs. Global Technology Portfolio | American Funds vs. Dreyfus Technology Growth |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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