Correlation Between American Balanced and Firsthand Technology
Can any of the company-specific risk be diversified away by investing in both American Balanced and Firsthand Technology 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 Firsthand Technology 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 Firsthand Technology Opportunities, you can compare the effects of market volatilities on American Balanced and Firsthand Technology 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 Firsthand Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Balanced and Firsthand Technology.
Diversification Opportunities for American Balanced and Firsthand Technology
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between American and Firsthand is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced Fund and Firsthand Technology Opportuni in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Firsthand Technology 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 Firsthand Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Firsthand Technology has no effect on the direction of American Balanced i.e., American Balanced and Firsthand Technology go up and down completely randomly.
Pair Corralation between American Balanced and Firsthand Technology
Assuming the 90 days horizon American Balanced Fund is expected to generate 0.35 times more return on investment than Firsthand Technology. However, American Balanced Fund is 2.85 times less risky than Firsthand Technology. It trades about 0.14 of its potential returns per unit of risk. Firsthand Technology Opportunities is currently generating about 0.03 per unit of risk. If you would invest 3,319 in American Balanced Fund on September 3, 2024 and sell it today you would earn a total of 382.00 from holding American Balanced Fund or generate 11.51% 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. Firsthand Technology Opportuni
Performance |
| Timeline |
| American Balanced |
| Firsthand Technology |
American Balanced and Firsthand Technology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Balanced and Firsthand Technology
The main advantage of trading using opposite American Balanced and Firsthand Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Balanced position performs unexpectedly, Firsthand Technology 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 Firsthand Technology will offset losses from the drop in Firsthand Technology's long position.The idea behind American Balanced Fund and Firsthand Technology Opportunities 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.
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.
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