Correlation Between American Funds and Midcap Growth

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Can any of the company-specific risk be diversified away by investing in both American Funds and Midcap Growth 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 Midcap Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds Retirement and Midcap Growth Fund, you can compare the effects of market volatilities on American Funds and Midcap Growth 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 Midcap Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Midcap Growth.

Diversification Opportunities for American Funds and Midcap Growth

0.16
  Correlation Coefficient

Average diversification

The 3 months correlation between American and Midcap is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Retirement and Midcap Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Midcap Growth 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 Retirement are associated (or correlated) with Midcap Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Midcap Growth has no effect on the direction of American Funds i.e., American Funds and Midcap Growth go up and down completely randomly.

Pair Corralation between American Funds and Midcap Growth

Assuming the 90 days horizon American Funds is expected to generate 2.01 times less return on investment than Midcap Growth. But when comparing it to its historical volatility, American Funds Retirement is 2.76 times less risky than Midcap Growth. It trades about 0.14 of its potential returns per unit of risk. Midcap Growth Fund is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  732.00  in Midcap Growth Fund on September 3, 2024 and sell it today you would earn a total of  96.00  from holding Midcap Growth Fund or generate 13.11% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy97.6%
ValuesDaily Returns

American Funds Retirement  vs.  Midcap Growth Fund

 Performance 
       Timeline  
American Funds Retirement 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in American Funds Retirement are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Midcap Growth 

Risk-Adjusted Performance

19 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Midcap Growth Fund are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Midcap Growth showed solid returns over the last few months and may actually be approaching a breakup point.

American Funds and Midcap Growth Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with American Funds and Midcap Growth

The main advantage of trading using opposite American Funds and Midcap Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Midcap Growth 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 Midcap Growth will offset losses from the drop in Midcap Growth's long position.
The idea behind American Funds Retirement and Midcap Growth Fund 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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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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..

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