Correlation Between American Balanced and Morningstar Defensive
Can any of the company-specific risk be diversified away by investing in both American Balanced and Morningstar Defensive 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 Morningstar Defensive 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 Morningstar Defensive Bond, you can compare the effects of market volatilities on American Balanced and Morningstar Defensive 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 Morningstar Defensive. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Balanced and Morningstar Defensive.
Diversification Opportunities for American Balanced and Morningstar Defensive
-0.2 | Correlation Coefficient |
Good diversification
The 3 months correlation between American and Morningstar is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced Fund and Morningstar Defensive Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morningstar Defensive 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 Morningstar Defensive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Morningstar Defensive has no effect on the direction of American Balanced i.e., American Balanced and Morningstar Defensive go up and down completely randomly.
Pair Corralation between American Balanced and Morningstar Defensive
Assuming the 90 days horizon American Balanced Fund is expected to generate 3.41 times more return on investment than Morningstar Defensive. However, American Balanced is 3.41 times more volatile than Morningstar Defensive Bond. It trades about 0.12 of its potential returns per unit of risk. Morningstar Defensive Bond is currently generating about 0.16 per unit of risk. If you would invest 2,925 in American Balanced Fund on August 31, 2024 and sell it today you would earn a total of 735.00 from holding American Balanced Fund or generate 25.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.73% |
| Values | Daily Returns |
American Balanced Fund vs. Morningstar Defensive Bond
Performance |
| Timeline |
| American Balanced |
| Morningstar Defensive |
American Balanced and Morningstar Defensive Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Balanced and Morningstar Defensive
The main advantage of trading using opposite American Balanced and Morningstar Defensive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Balanced position performs unexpectedly, Morningstar Defensive 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 Morningstar Defensive will offset losses from the drop in Morningstar Defensive's long position.The idea behind American Balanced Fund and Morningstar Defensive Bond 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.
| Morningstar Defensive vs. John Hancock Money | Morningstar Defensive vs. Ashmore Emerging Markets | Morningstar Defensive vs. Pimco Funds | Morningstar Defensive vs. American Century Investment |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
Other Complementary Tools
| Global Markets Map Get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes | |
| Portfolio Dashboard Portfolio dashboard that provides centralized access to all your investments | |
| Fundamental Analysis View fundamental data based on most recent published financial statements | |
| Funds Screener Find actively-traded funds from around the world traded on over 30 global exchanges | |
| Technical Analysis Check basic technical indicators and analysis based on most latest market data |