Correlation Between New Perspective and American Funds
Can any of the company-specific risk be diversified away by investing in both New Perspective 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 New Perspective and American Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between New Perspective Fund and American Funds Growth, you can compare the effects of market volatilities on New Perspective 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 New Perspective with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Perspective and American Funds.
Diversification Opportunities for New Perspective and American Funds
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between New and American is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding New Perspective Fund and American Funds Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Growth and New Perspective 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 New Perspective Fund 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 Growth has no effect on the direction of New Perspective i.e., New Perspective and American Funds go up and down completely randomly.
Pair Corralation between New Perspective and American Funds
Assuming the 90 days horizon New Perspective is expected to generate 1.3 times less return on investment than American Funds. But when comparing it to its historical volatility, New Perspective Fund is 1.09 times less risky than American Funds. It trades about 0.09 of its potential returns per unit of risk. American Funds Growth is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 2,291 in American Funds Growth on August 29, 2024 and sell it today you would earn a total of 468.00 from holding American Funds Growth or generate 20.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
New Perspective Fund vs. American Funds Growth
Performance |
| Timeline |
| New Perspective |
| American Funds Growth |
New Perspective and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with New Perspective and American Funds
The main advantage of trading using opposite New Perspective and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Perspective 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.| New Perspective vs. Davis Financial Fund | New Perspective vs. First Trust Specialty | New Perspective vs. Prudential Jennison Financial | New Perspective vs. T Rowe Price |
| American Funds vs. Vanguard Equity Income | American Funds vs. T Rowe Price | American Funds vs. Upright Assets Allocation | American Funds vs. T Rowe Price |
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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