Correlation Between American Balanced and Modern Capital
Can any of the company-specific risk be diversified away by investing in both American Balanced and Modern Capital 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 Balanced and Modern Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Balanced Fund and Modern Capital Tactical, you can compare the effects of market volatilities on American Balanced and Modern Capital 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 Balanced with a short position of Modern Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Balanced and Modern Capital.
Diversification Opportunities for American Balanced and Modern Capital
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between American and Modern is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced Fund and Modern Capital Tactical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Modern Capital Tactical and American Balanced 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 Balanced Fund are associated (or correlated) with Modern Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Modern Capital Tactical has no effect on the direction of American Balanced i.e., American Balanced and Modern Capital go up and down completely randomly.
Pair Corralation between American Balanced and Modern Capital
Assuming the 90 days horizon American Balanced is expected to generate 2.61 times less return on investment than Modern Capital. In addition to that, American Balanced is 1.34 times more volatile than Modern Capital Tactical. It trades about 0.11 of its total potential returns per unit of risk. Modern Capital Tactical is currently generating about 0.39 per unit of volatility. If you would invest 1,225 in Modern Capital Tactical on August 31, 2024 and sell it today you would earn a total of 42.00 from holding Modern Capital Tactical or generate 3.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Balanced Fund vs. Modern Capital Tactical
Performance |
| Timeline |
| American Balanced |
| Modern Capital Tactical |
American Balanced and Modern Capital Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Balanced and Modern Capital
The main advantage of trading using opposite American Balanced and Modern Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Balanced position performs unexpectedly, Modern Capital 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 Modern Capital will offset losses from the drop in Modern Capital's long position.The idea behind American Balanced Fund and Modern Capital Tactical 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.
| Modern Capital vs. American Funds American | Modern Capital vs. American Funds American | Modern Capital vs. American Balanced | Modern Capital vs. American Balanced 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
Other Complementary Tools
| Economic Indicators Top statistical indicators that provide insights into how an economy is performing | |
| AI Portfolio Architect Use AI to generate optimal portfolios and find profitable investment opportunities | |
| Risk-Return Analysis View associations between returns expected from investment and the risk you assume | |
| Portfolio Suggestion Get suggestions outside of your existing asset allocation including your own model portfolios | |
| Equity Search Search for actively traded equities including funds and ETFs from over 30 global markets |