Correlation Between American Funds and Target Retirement
Can any of the company-specific risk be diversified away by investing in both American Funds and Target Retirement 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 Target Retirement 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 Target Retirement 2040, you can compare the effects of market volatilities on American Funds and Target Retirement 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 Target Retirement. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Target Retirement.
Diversification Opportunities for American Funds and Target Retirement
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between American and Target is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Retirement and Target Retirement 2040 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target Retirement 2040 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 Target Retirement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target Retirement 2040 has no effect on the direction of American Funds i.e., American Funds and Target Retirement go up and down completely randomly.
Pair Corralation between American Funds and Target Retirement
Assuming the 90 days horizon American Funds is expected to generate 1.12 times less return on investment than Target Retirement. But when comparing it to its historical volatility, American Funds Retirement is 1.7 times less risky than Target Retirement. It trades about 0.08 of its potential returns per unit of risk. Target Retirement 2040 is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 1,152 in Target Retirement 2040 on August 26, 2024 and sell it today you would earn a total of 221.00 from holding Target Retirement 2040 or generate 19.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds Retirement vs. Target Retirement 2040
Performance |
| Timeline |
| American Funds Retirement |
| Target Retirement 2040 |
American Funds and Target Retirement Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Target Retirement
The main advantage of trading using opposite American Funds and Target Retirement positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Target Retirement 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 Target Retirement will offset losses from the drop in Target Retirement's long position.| American Funds vs. Jhancock Real Estate | American Funds vs. Virtus Real Estate | American Funds vs. Simt Real Estate | American Funds vs. Prudential Real Estate |
| Target Retirement vs. Income Fund Income | Target Retirement vs. Usaa Nasdaq 100 | Target Retirement vs. Victory Diversified Stock | Target Retirement vs. Intermediate Term Bond 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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