Correlation Between American Balanced and Washington Mutual
Can any of the company-specific risk be diversified away by investing in both American Balanced and Washington Mutual 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 Washington Mutual 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 Washington Mutual Investors, you can compare the effects of market volatilities on American Balanced and Washington Mutual 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 Washington Mutual. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Balanced and Washington Mutual.
Diversification Opportunities for American Balanced and Washington Mutual
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between American and Washington is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced Fund and Washington Mutual Investors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Washington Mutual 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 Washington Mutual. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Washington Mutual has no effect on the direction of American Balanced i.e., American Balanced and Washington Mutual go up and down completely randomly.
Pair Corralation between American Balanced and Washington Mutual
Assuming the 90 days horizon American Balanced is expected to generate 1.29 times less return on investment than Washington Mutual. But when comparing it to its historical volatility, American Balanced Fund is 1.31 times less risky than Washington Mutual. It trades about 0.11 of its potential returns per unit of risk. Washington Mutual Investors is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 4,653 in Washington Mutual Investors on August 28, 2024 and sell it today you would earn a total of 1,928 from holding Washington Mutual Investors or generate 41.44% 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. Washington Mutual Investors
Performance |
| Timeline |
| American Balanced |
| Washington Mutual |
American Balanced and Washington Mutual Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Balanced and Washington Mutual
The main advantage of trading using opposite American Balanced and Washington Mutual positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Balanced position performs unexpectedly, Washington Mutual 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 Washington Mutual will offset losses from the drop in Washington Mutual'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 |
| Washington Mutual vs. Income Fund Of | Washington Mutual vs. New World Fund | Washington Mutual vs. American Mutual Fund | Washington Mutual vs. American Mutual Fund |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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