Correlation Between American Balanced and Vanguard Balanced
Can any of the company-specific risk be diversified away by investing in both American Balanced and Vanguard Balanced 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 Vanguard Balanced 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 Vanguard Balanced Index, you can compare the effects of market volatilities on American Balanced and Vanguard Balanced 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 Vanguard Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Balanced and Vanguard Balanced.
Diversification Opportunities for American Balanced and Vanguard Balanced
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between American and Vanguard is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced Fund and Vanguard Balanced Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Balanced Index 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 Vanguard Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Balanced Index has no effect on the direction of American Balanced i.e., American Balanced and Vanguard Balanced go up and down completely randomly.
Pair Corralation between American Balanced and Vanguard Balanced
Assuming the 90 days horizon American Balanced is expected to generate 2.49 times less return on investment than Vanguard Balanced. But when comparing it to its historical volatility, American Balanced Fund is 1.05 times less risky than Vanguard Balanced. It trades about 0.07 of its potential returns per unit of risk. Vanguard Balanced Index is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 4,975 in Vanguard Balanced Index on August 28, 2024 and sell it today you would earn a total of 99.00 from holding Vanguard Balanced Index or generate 1.99% 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. Vanguard Balanced Index
Performance |
| Timeline |
| American Balanced |
| Vanguard Balanced Index |
American Balanced and Vanguard Balanced Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Balanced and Vanguard Balanced
The main advantage of trading using opposite American Balanced and Vanguard Balanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Balanced position performs unexpectedly, Vanguard Balanced 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 Vanguard Balanced will offset losses from the drop in Vanguard Balanced's long position.| American Balanced vs. Income Fund Of | American Balanced vs. Capital Income Builder | American Balanced vs. Capital World Growth | American Balanced vs. Growth Fund Of |
| Vanguard Balanced vs. Vanguard Wellesley Income | Vanguard Balanced vs. Vanguard Total Bond | Vanguard Balanced vs. Vanguard Growth Index | Vanguard Balanced vs. Vanguard 500 Index |
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 CEOs Directory module to screen CEOs from public companies around the world.
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