Correlation Between American Funds and New Economy
Can any of the company-specific risk be diversified away by investing in both American Funds and New Economy 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 New Economy 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 New Economy Fund, you can compare the effects of market volatilities on American Funds and New Economy 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 New Economy. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and New Economy.
Diversification Opportunities for American Funds and New Economy
0.55 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between American and New is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding American Funds 2015 and New Economy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Economy Fund 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 New Economy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Economy Fund has no effect on the direction of American Funds i.e., American Funds and New Economy go up and down completely randomly.
Pair Corralation between American Funds and New Economy
Assuming the 90 days horizon American Funds is expected to generate 2.0 times less return on investment than New Economy. But when comparing it to its historical volatility, American Funds 2015 is 2.49 times less risky than New Economy. It trades about 0.11 of its potential returns per unit of risk. New Economy Fund is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 5,064 in New Economy Fund on September 2, 2024 and sell it today you would earn a total of 1,761 from holding New Economy Fund or generate 34.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds 2015 vs. New Economy Fund
Performance |
| Timeline |
| American Funds 2015 |
| New Economy Fund |
American Funds and New Economy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and New Economy
The main advantage of trading using opposite American Funds and New Economy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, New Economy 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 New Economy will offset losses from the drop in New Economy's long position.| American Funds vs. Vanguard Institutional Short Term | American Funds vs. Barings Active Short | American Funds vs. Old Westbury Short Term | American Funds vs. Goldman Sachs Short Term |
| New Economy vs. Auer Growth Fund | New Economy vs. Artisan Thematic Fund | New Economy vs. Nasdaq 100 Index Fund | New Economy vs. Qs Growth Fund |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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