Correlation Between Modern Capital and American Balanced
Can any of the company-specific risk be diversified away by investing in both Modern Capital and American Balanced 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 Modern Capital and American Balanced into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Modern Capital Tactical and American Balanced, you can compare the effects of market volatilities on Modern Capital and American Balanced 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 Modern Capital with a short position of American Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Modern Capital and American Balanced.
Diversification Opportunities for Modern Capital and American Balanced
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Modern and American is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Modern Capital Tactical and American Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Balanced and Modern Capital 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 Modern Capital Tactical are associated (or correlated) with American Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Balanced has no effect on the direction of Modern Capital i.e., Modern Capital and American Balanced go up and down completely randomly.
Pair Corralation between Modern Capital and American Balanced
Assuming the 90 days horizon Modern Capital is expected to generate 1.06 times less return on investment than American Balanced. In addition to that, Modern Capital is 1.23 times more volatile than American Balanced. It trades about 0.08 of its total potential returns per unit of risk. American Balanced is currently generating about 0.1 per unit of volatility. If you would invest 2,836 in American Balanced on September 2, 2024 and sell it today you would earn a total of 858.00 from holding American Balanced or generate 30.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Modern Capital Tactical vs. American Balanced
Performance |
| Timeline |
| Modern Capital Tactical |
| American Balanced |
Modern Capital and American Balanced Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Modern Capital and American Balanced
The main advantage of trading using opposite Modern Capital and American Balanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Modern Capital position performs unexpectedly, American Balanced 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 Balanced will offset losses from the drop in American Balanced's long position.| Modern Capital vs. Ab Global Risk | Modern Capital vs. Us Global Investors | Modern Capital vs. Federated Global Allocation | Modern Capital vs. Wisdomtree Siegel Global |
| American Balanced vs. Income Fund Of | American Balanced vs. Capital Income Builder | American Balanced vs. Capital World Growth | American Balanced vs. Growth Fund Of |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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