Correlation Between Jennison Natural and American Beacon
Can any of the company-specific risk be diversified away by investing in both Jennison Natural and American Beacon 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 Jennison Natural and American Beacon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Jennison Natural Resources and American Beacon Large, you can compare the effects of market volatilities on Jennison Natural and American Beacon 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 Jennison Natural with a short position of American Beacon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Jennison Natural and American Beacon.
Diversification Opportunities for Jennison Natural and American Beacon
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Jennison and American is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Jennison Natural Resources and American Beacon Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Large and Jennison Natural 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 Jennison Natural Resources are associated (or correlated) with American Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Beacon Large has no effect on the direction of Jennison Natural i.e., Jennison Natural and American Beacon go up and down completely randomly.
Pair Corralation between Jennison Natural and American Beacon
Assuming the 90 days horizon Jennison Natural is expected to generate 3.22 times less return on investment than American Beacon. In addition to that, Jennison Natural is 1.67 times more volatile than American Beacon Large. It trades about 0.01 of its total potential returns per unit of risk. American Beacon Large is currently generating about 0.08 per unit of volatility. If you would invest 1,978 in American Beacon Large on September 2, 2024 and sell it today you would earn a total of 692.00 from holding American Beacon Large or generate 34.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Jennison Natural Resources vs. American Beacon Large
Performance |
| Timeline |
| Jennison Natural Res |
| American Beacon Large |
Jennison Natural and American Beacon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Jennison Natural and American Beacon
The main advantage of trading using opposite Jennison Natural and American Beacon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Jennison Natural position performs unexpectedly, American Beacon 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 Beacon will offset losses from the drop in American Beacon's long position.The idea behind Jennison Natural Resources and American Beacon Large 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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