Correlation Between American Balanced and Smallcap World
Can any of the company-specific risk be diversified away by investing in both American Balanced and Smallcap World 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 Smallcap World 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 Smallcap World Fund, you can compare the effects of market volatilities on American Balanced and Smallcap World 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 Smallcap World. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Balanced and Smallcap World.
Diversification Opportunities for American Balanced and Smallcap World
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between American and Smallcap is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced Fund and Smallcap World Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap World 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 Smallcap World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap World has no effect on the direction of American Balanced i.e., American Balanced and Smallcap World go up and down completely randomly.
Pair Corralation between American Balanced and Smallcap World
Assuming the 90 days horizon American Balanced Fund is expected to generate 0.58 times more return on investment than Smallcap World. However, American Balanced Fund is 1.72 times less risky than Smallcap World. It trades about 0.12 of its potential returns per unit of risk. Smallcap World Fund is currently generating about 0.06 per unit of risk. If you would invest 3,374 in American Balanced Fund on September 3, 2024 and sell it today you would earn a total of 293.00 from holding American Balanced Fund or generate 8.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Balanced Fund vs. Smallcap World Fund
Performance |
| Timeline |
| American Balanced |
| Smallcap World |
American Balanced and Smallcap World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Balanced and Smallcap World
The main advantage of trading using opposite American Balanced and Smallcap World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Balanced position performs unexpectedly, Smallcap World 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 Smallcap World will offset losses from the drop in Smallcap World's long position.| American Balanced vs. Dreyfus Natural Resources | American Balanced vs. Energy Basic Materials | American Balanced vs. Gamco Natural Resources | American Balanced vs. Calvert Global Energy |
| Smallcap World vs. Western Asset Diversified | Smallcap World vs. Delaware Limited Term Diversified | Smallcap World vs. Fidelity Advisor Diversified | Smallcap World vs. Adams Diversified Equity |
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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