Correlation Between American Funds and Amcap Fund
Can any of the company-specific risk be diversified away by investing in both American Funds and Amcap Fund 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 Funds and Amcap Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds Income and Amcap Fund Class, you can compare the effects of market volatilities on American Funds and Amcap Fund 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 Funds with a short position of Amcap Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Amcap Fund.
Diversification Opportunities for American Funds and Amcap Fund
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Amcap is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Income and Amcap Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amcap Fund Class and American Funds 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 Funds Income are associated (or correlated) with Amcap Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amcap Fund Class has no effect on the direction of American Funds i.e., American Funds and Amcap Fund go up and down completely randomly.
Pair Corralation between American Funds and Amcap Fund
Assuming the 90 days horizon American Funds is expected to generate 2.18 times less return on investment than Amcap Fund. But when comparing it to its historical volatility, American Funds Income is 2.33 times less risky than Amcap Fund. It trades about 0.09 of its potential returns per unit of risk. Amcap Fund Class is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 2,515 in Amcap Fund Class on August 27, 2024 and sell it today you would earn a total of 1,135 from holding Amcap Fund Class or generate 45.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds Income vs. Amcap Fund Class
Performance |
| Timeline |
| American Funds Income |
| Amcap Fund Class |
American Funds and Amcap Fund Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Amcap Fund
The main advantage of trading using opposite American Funds and Amcap Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Amcap Fund 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 Amcap Fund will offset losses from the drop in Amcap Fund's long position.| American Funds vs. Davis Financial Fund | American Funds vs. Fidelity Advisor Financial | American Funds vs. Mesirow Financial Small | American Funds vs. Icon Financial Fund |
| Amcap Fund vs. Income Fund Of | Amcap Fund vs. New World Fund | Amcap Fund vs. American Mutual Fund | Amcap Fund 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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