Correlation Between American Funds and American Balanced
Can any of the company-specific risk be diversified away by investing in both American Funds 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 American Funds and American Balanced into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds 2015 and American Balanced Fund, you can compare the effects of market volatilities on American Funds 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 American Funds with a short position of American Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and American Balanced.
Diversification Opportunities for American Funds and American Balanced
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and American is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding American Funds 2015 and American Balanced Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Balanced 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 2015 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 American Funds i.e., American Funds and American Balanced go up and down completely randomly.
Pair Corralation between American Funds and American Balanced
Assuming the 90 days horizon American Funds is expected to generate 1.72 times less return on investment than American Balanced. But when comparing it to its historical volatility, American Funds 2015 is 1.7 times less risky than American Balanced. It trades about 0.11 of its potential returns per unit of risk. American Balanced Fund is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 3,605 in American Balanced Fund on August 31, 2024 and sell it today you would earn a total of 47.00 from holding American Balanced Fund or generate 1.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds 2015 vs. American Balanced Fund
Performance |
| Timeline |
| American Funds 2015 |
| American Balanced |
American Funds and American Balanced Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and American Balanced
The main advantage of trading using opposite American Funds and American Balanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds 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.| American Funds vs. Fidelity Freedom 2015 | American Funds vs. T Rowe Price | American Funds vs. T Rowe Price | American Funds vs. Fidelity Freedom 2015 |
| American Balanced vs. American Funds 2015 | American Balanced vs. American Mutual Fund | American Balanced vs. American Funds Income | American Balanced vs. American Funds Preservation |
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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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