Correlation Between American Balanced and Sierra Tactical
Can any of the company-specific risk be diversified away by investing in both American Balanced and Sierra Tactical 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 Sierra Tactical 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 Sierra Tactical Risk, you can compare the effects of market volatilities on American Balanced and Sierra Tactical 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 Sierra Tactical. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Balanced and Sierra Tactical.
Diversification Opportunities for American Balanced and Sierra Tactical
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between American and Sierra is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced Fund and Sierra Tactical Risk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sierra Tactical Risk 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 Sierra Tactical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sierra Tactical Risk has no effect on the direction of American Balanced i.e., American Balanced and Sierra Tactical go up and down completely randomly.
Pair Corralation between American Balanced and Sierra Tactical
Assuming the 90 days horizon American Balanced Fund is expected to generate 1.02 times more return on investment than Sierra Tactical. However, American Balanced is 1.02 times more volatile than Sierra Tactical Risk. It trades about 0.14 of its potential returns per unit of risk. Sierra Tactical Risk is currently generating about 0.09 per unit of risk. If you would invest 3,356 in American Balanced Fund on September 1, 2024 and sell it today you would earn a total of 327.00 from holding American Balanced Fund or generate 9.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.21% |
| Values | Daily Returns |
American Balanced Fund vs. Sierra Tactical Risk
Performance |
| Timeline |
| American Balanced |
| Sierra Tactical Risk |
American Balanced and Sierra Tactical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Balanced and Sierra Tactical
The main advantage of trading using opposite American Balanced and Sierra Tactical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Balanced position performs unexpectedly, Sierra Tactical 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 Sierra Tactical will offset losses from the drop in Sierra Tactical's long position.| American Balanced vs. Great West Real Estate | American Balanced vs. Fidelity Real Estate | American Balanced vs. Dunham Real Estate | American Balanced vs. Forum Real Estate |
| Sierra Tactical vs. Sierra Tactical Risk | Sierra Tactical vs. Sierra Tactical Risk | Sierra Tactical vs. Sierra Tactical Risk | Sierra Tactical vs. Sierra Strategic Income |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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