Correlation Between American Funds and Pace Municipal
Can any of the company-specific risk be diversified away by investing in both American Funds and Pace Municipal 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 Pace Municipal 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 Pace Municipal Fixed, you can compare the effects of market volatilities on American Funds and Pace Municipal 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 Pace Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Pace Municipal.
Diversification Opportunities for American Funds and Pace Municipal
0.3 | Correlation Coefficient |
Weak diversification
The 3 months correlation between American and Pace is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Retirement and Pace Municipal Fixed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pace Municipal Fixed 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 Pace Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pace Municipal Fixed has no effect on the direction of American Funds i.e., American Funds and Pace Municipal go up and down completely randomly.
Pair Corralation between American Funds and Pace Municipal
Assuming the 90 days horizon American Funds Retirement is expected to generate 1.5 times more return on investment than Pace Municipal. However, American Funds is 1.5 times more volatile than Pace Municipal Fixed. It trades about 0.09 of its potential returns per unit of risk. Pace Municipal Fixed is currently generating about 0.1 per unit of risk. If you would invest 1,271 in American Funds Retirement on August 31, 2024 and sell it today you would earn a total of 9.00 from holding American Funds Retirement or generate 0.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds Retirement vs. Pace Municipal Fixed
Performance |
| Timeline |
| American Funds Retirement |
| Pace Municipal Fixed |
American Funds and Pace Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Pace Municipal
The main advantage of trading using opposite American Funds and Pace Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Pace Municipal 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 Pace Municipal will offset losses from the drop in Pace Municipal's long position.| American Funds vs. Baird Smallmid Cap | American Funds vs. Touchstone Small Cap | American Funds vs. Kinetics Small Cap | American Funds vs. Small Midcap Dividend Income |
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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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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