Correlation Between American Funds and F/m Investments
Can any of the company-specific risk be diversified away by investing in both American Funds and F/m Investments 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 American Funds and F/m Investments into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds 2040 and Fm Investments Large, you can compare the effects of market volatilities on American Funds and F/m Investments 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 American Funds with a short position of F/m Investments. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and F/m Investments.
Diversification Opportunities for American Funds and F/m Investments
0.51 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between American and F/m is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding American Funds 2040 and Fm Investments Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fm Investments Large and American Funds 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 American Funds 2040 are associated (or correlated) with F/m Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fm Investments Large has no effect on the direction of American Funds i.e., American Funds and F/m Investments go up and down completely randomly.
Pair Corralation between American Funds and F/m Investments
Assuming the 90 days horizon American Funds 2040 is expected to generate 0.43 times more return on investment than F/m Investments. However, American Funds 2040 is 2.3 times less risky than F/m Investments. It trades about -0.09 of its potential returns per unit of risk. Fm Investments Large is currently generating about -0.25 per unit of risk. If you would invest 2,040 in American Funds 2040 on December 4, 2024 and sell it today you would lose (22.00) from holding American Funds 2040 or give up 1.08% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.24% |
| Values | Daily Returns |
American Funds 2040 vs. Fm Investments Large
Performance |
| Timeline |
| American Funds 2040 |
| Fm Investments Large |
American Funds and F/m Investments Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and F/m Investments
The main advantage of trading using opposite American Funds and F/m Investments positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, F/m Investments 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 F/m Investments will offset losses from the drop in F/m Investments' long position.| American Funds vs. Stone Ridge Diversified | American Funds vs. Harbor Diversified International | American Funds vs. Lord Abbett Diversified | American Funds vs. Diversified Real Asset |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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