Correlation Between Smallcap Growth and American Balanced
Can any of the company-specific risk be diversified away by investing in both Smallcap Growth 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 Smallcap Growth and American Balanced into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Smallcap Growth Fund and American Balanced Fund, you can compare the effects of market volatilities on Smallcap Growth 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 Smallcap Growth with a short position of American Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap Growth and American Balanced.
Diversification Opportunities for Smallcap Growth and American Balanced
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Smallcap and American is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Growth Fund and American Balanced Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Balanced and Smallcap Growth 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 Smallcap Growth Fund 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 Smallcap Growth i.e., Smallcap Growth and American Balanced go up and down completely randomly.
Pair Corralation between Smallcap Growth and American Balanced
Assuming the 90 days horizon Smallcap Growth Fund is expected to generate 2.72 times more return on investment than American Balanced. However, Smallcap Growth is 2.72 times more volatile than American Balanced Fund. It trades about 0.1 of its potential returns per unit of risk. American Balanced Fund is currently generating about 0.02 per unit of risk. If you would invest 1,627 in Smallcap Growth Fund on September 13, 2024 and sell it today you would earn a total of 84.00 from holding Smallcap Growth Fund or generate 5.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Smallcap Growth Fund vs. American Balanced Fund
Performance |
| Timeline |
| Smallcap Growth |
| American Balanced |
Smallcap Growth and American Balanced Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Smallcap Growth and American Balanced
The main advantage of trading using opposite Smallcap Growth and American Balanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smallcap Growth 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.| Smallcap Growth vs. Strategic Asset Management | Smallcap Growth vs. Strategic Asset Management | Smallcap Growth vs. Strategic Asset Management | Smallcap Growth vs. Strategic Asset Management |
| American Balanced vs. Franklin High Yield | American Balanced vs. Morningstar Defensive Bond | American Balanced vs. Pace High Yield | American Balanced vs. Ambrus Core Bond |
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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