Correlation Between American Funds and Pax Large
Can any of the company-specific risk be diversified away by investing in both American Funds and Pax Large 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 Pax Large 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 Pax Large Cap, you can compare the effects of market volatilities on American Funds and Pax Large 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 Pax Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Pax Large.
Diversification Opportunities for American Funds and Pax Large
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Pax is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Retirement and Pax Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pax Large Cap 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 Pax Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pax Large Cap has no effect on the direction of American Funds i.e., American Funds and Pax Large go up and down completely randomly.
Pair Corralation between American Funds and Pax Large
Assuming the 90 days horizon American Funds is expected to generate 1.3 times less return on investment than Pax Large. But when comparing it to its historical volatility, American Funds Retirement is 2.22 times less risky than Pax Large. It trades about 0.15 of its potential returns per unit of risk. Pax Large Cap is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 1,426 in Pax Large Cap on September 1, 2024 and sell it today you would earn a total of 128.00 from holding Pax Large Cap or generate 8.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.21% |
| Values | Daily Returns |
American Funds Retirement vs. Pax Large Cap
Performance |
| Timeline |
| American Funds Retirement |
| Pax Large Cap |
American Funds and Pax Large Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Pax Large
The main advantage of trading using opposite American Funds and Pax Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Pax Large 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 Pax Large will offset losses from the drop in Pax Large's long position.| American Funds vs. Mesirow Financial Small | American Funds vs. Davis Financial Fund | American Funds vs. Icon Financial Fund | American Funds vs. Blackrock Financial Institutions |
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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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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