Correlation Between American Funds and New World
Can any of the company-specific risk be diversified away by investing in both American Funds and New World 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 New World 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 New World Fund, you can compare the effects of market volatilities on American Funds and New World 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 New World. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and New World.
Diversification Opportunities for American Funds and New World
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and New is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Income and New World Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New World Fund 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 New World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New World Fund has no effect on the direction of American Funds i.e., American Funds and New World go up and down completely randomly.
Pair Corralation between American Funds and New World
Assuming the 90 days horizon American Funds Income is expected to generate 0.48 times more return on investment than New World. However, American Funds Income is 2.09 times less risky than New World. It trades about 0.16 of its potential returns per unit of risk. New World Fund is currently generating about 0.07 per unit of risk. If you would invest 1,188 in American Funds Income on August 29, 2024 and sell it today you would earn a total of 178.00 from holding American Funds Income or generate 14.98% 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. New World Fund
Performance |
| Timeline |
| American Funds Income |
| New World Fund |
American Funds and New World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and New World
The main advantage of trading using opposite American Funds and New World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, New World 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 New World will offset losses from the drop in New World's long position.| American Funds vs. Short Intermediate Bond Fund | American Funds vs. Quantitative Longshort Equity | American Funds vs. Jhancock Short Duration | American Funds vs. Calvert Short Duration |
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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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