Correlation Between Lifestyle and American Funds
Can any of the company-specific risk be diversified away by investing in both 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 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 Lifestyle Ii Moderate and American Funds International, you can compare the effects of market volatilities on 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 Lifestyle with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lifestyle and American Funds.
Diversification Opportunities for Lifestyle and American Funds
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Lifestyle and American is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Lifestyle Ii Moderate and American Funds International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Inter and 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 Lifestyle Ii 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 Inter has no effect on the direction of Lifestyle i.e., Lifestyle and American Funds go up and down completely randomly.
Pair Corralation between Lifestyle and American Funds
Assuming the 90 days horizon Lifestyle is expected to generate 1.24 times less return on investment than American Funds. But when comparing it to its historical volatility, Lifestyle Ii Moderate is 1.39 times less risky than American Funds. It trades about 0.09 of its potential returns per unit of risk. American Funds International is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,639 in American Funds International on October 22, 2024 and sell it today you would earn a total of 13.00 from holding American Funds International or generate 0.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lifestyle Ii Moderate vs. American Funds International
Performance |
| Timeline |
| Lifestyle Ii Moderate |
| American Funds Inter |
Lifestyle and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lifestyle and American Funds
The main advantage of trading using opposite Lifestyle and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 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.| Lifestyle vs. Artisan High Income | Lifestyle vs. Barings High Yield | Lifestyle vs. Franklin Government Money | Lifestyle vs. Federated High Yield |
| American Funds vs. Moderate Balanced Allocation | American Funds vs. American Funds Retirement | American Funds vs. Lifestyle Ii Moderate | American Funds vs. Franklin Lifesmart Retirement |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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