Correlation Between Small-midcap Dividend and American Funds
Can any of the company-specific risk be diversified away by investing in both Small-midcap Dividend 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 Small-midcap Dividend and American Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Midcap Dividend Income and American Funds 2035, you can compare the effects of market volatilities on Small-midcap Dividend 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 Small-midcap Dividend with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small-midcap Dividend and American Funds.
Diversification Opportunities for Small-midcap Dividend and American Funds
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Small-midcap and American is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Small Midcap Dividend Income and American Funds 2035 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds 2035 and Small-midcap Dividend 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 Small Midcap Dividend Income 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 2035 has no effect on the direction of Small-midcap Dividend i.e., Small-midcap Dividend and American Funds go up and down completely randomly.
Pair Corralation between Small-midcap Dividend and American Funds
Assuming the 90 days horizon Small Midcap Dividend Income is expected to generate 2.43 times more return on investment than American Funds. However, Small-midcap Dividend is 2.43 times more volatile than American Funds 2035. It trades about 0.27 of its potential returns per unit of risk. American Funds 2035 is currently generating about 0.1 per unit of risk. If you would invest 1,918 in Small Midcap Dividend Income on August 31, 2024 and sell it today you would earn a total of 139.00 from holding Small Midcap Dividend Income or generate 7.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Midcap Dividend Income vs. American Funds 2035
Performance |
| Timeline |
| Small Midcap Dividend |
| American Funds 2035 |
Small-midcap Dividend and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small-midcap Dividend and American Funds
The main advantage of trading using opposite Small-midcap Dividend and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small-midcap Dividend 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.The idea behind Small Midcap Dividend Income and American Funds 2035 pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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