Correlation Between Morningstar Defensive and American Balanced
Can any of the company-specific risk be diversified away by investing in both Morningstar Defensive 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 Morningstar Defensive and American Balanced into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Morningstar Defensive Bond and American Balanced Fund, you can compare the effects of market volatilities on Morningstar Defensive 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 Morningstar Defensive with a short position of American Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morningstar Defensive and American Balanced.
Diversification Opportunities for Morningstar Defensive and American Balanced
-0.2 | Correlation Coefficient |
Good diversification
The 3 months correlation between Morningstar and American is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar Defensive Bond and American Balanced Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Balanced and Morningstar Defensive 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 Morningstar Defensive Bond 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 Morningstar Defensive i.e., Morningstar Defensive and American Balanced go up and down completely randomly.
Pair Corralation between Morningstar Defensive and American Balanced
Assuming the 90 days horizon Morningstar Defensive is expected to generate 2.46 times less return on investment than American Balanced. But when comparing it to its historical volatility, Morningstar Defensive Bond is 3.41 times less risky than American Balanced. It trades about 0.16 of its potential returns per unit of risk. American Balanced Fund is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 2,925 in American Balanced Fund on August 31, 2024 and sell it today you would earn a total of 735.00 from holding American Balanced Fund or generate 25.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.73% |
| Values | Daily Returns |
Morningstar Defensive Bond vs. American Balanced Fund
Performance |
| Timeline |
| Morningstar Defensive |
| American Balanced |
Morningstar Defensive and American Balanced Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Morningstar Defensive and American Balanced
The main advantage of trading using opposite Morningstar Defensive and American Balanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Morningstar Defensive 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.| Morningstar Defensive vs. John Hancock Money | Morningstar Defensive vs. Ashmore Emerging Markets | Morningstar Defensive vs. Pimco Funds | Morningstar Defensive vs. American Century Investment |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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