Correlation Between Balanced Strategy and American Funds
Can any of the company-specific risk be diversified away by investing in both Balanced Strategy 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 Balanced Strategy and American Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Balanced Strategy Fund and American Funds American, you can compare the effects of market volatilities on Balanced Strategy 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 Balanced Strategy with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Balanced Strategy and American Funds.
Diversification Opportunities for Balanced Strategy and American Funds
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Balanced and American is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Balanced Strategy Fund and American Funds American in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds American and Balanced Strategy 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 Balanced Strategy 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 American has no effect on the direction of Balanced Strategy i.e., Balanced Strategy and American Funds go up and down completely randomly.
Pair Corralation between Balanced Strategy and American Funds
Assuming the 90 days horizon Balanced Strategy is expected to generate 1.34 times less return on investment than American Funds. In addition to that, Balanced Strategy is 1.0 times more volatile than American Funds American. It trades about 0.07 of its total potential returns per unit of risk. American Funds American is currently generating about 0.1 per unit of volatility. If you would invest 2,818 in American Funds American on August 25, 2024 and sell it today you would earn a total of 825.00 from holding American Funds American or generate 29.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Balanced Strategy Fund vs. American Funds American
Performance |
| Timeline |
| Balanced Strategy |
| American Funds American |
Balanced Strategy and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Balanced Strategy and American Funds
The main advantage of trading using opposite Balanced Strategy and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Balanced Strategy 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.| Balanced Strategy vs. Artisan High Income | Balanced Strategy vs. Franklin High Income | Balanced Strategy vs. California High Yield Municipal | Balanced Strategy vs. T Rowe Price |
| American Funds vs. Income Fund Of | American Funds vs. Capital Income Builder | American Funds vs. Capital World Growth | American Funds vs. Growth Fund Of |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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