Correlation Between New World and American Funds
Can any of the company-specific risk be diversified away by investing in both New World and American Funds 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 New World and American Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between New World Fund and American Funds Fundamental, you can compare the effects of market volatilities on New World and American Funds 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 New World with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of New World and American Funds.
Diversification Opportunities for New World and American Funds
0.47 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between New and American is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding New World Fund and American Funds Fundamental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Funda and New World 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 New World Fund are associated (or correlated) with American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Funda has no effect on the direction of New World i.e., New World and American Funds go up and down completely randomly.
Pair Corralation between New World and American Funds
Assuming the 90 days horizon New World Fund is expected to under-perform the American Funds. But the mutual fund apears to be less risky and, when comparing its historical volatility, New World Fund is 1.24 times less risky than American Funds. The mutual fund trades about -0.24 of its potential returns per unit of risk. The American Funds Fundamental is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 8,654 in American Funds Fundamental on August 27, 2024 and sell it today you would earn a total of 143.00 from holding American Funds Fundamental or generate 1.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
New World Fund vs. American Funds Fundamental
Performance |
| Timeline |
| New World Fund |
| American Funds Funda |
New World and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with New World and American Funds
The main advantage of trading using opposite New World and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New World position performs unexpectedly, American Funds 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 American Funds will offset losses from the drop in American Funds' long position.| New World vs. Income Fund Of | New World vs. American Mutual Fund | New World vs. American Mutual Fund | New World vs. American Funds Income |
| American Funds vs. Income Fund Of | American Funds vs. New World Fund | American Funds vs. American Mutual Fund | American Funds 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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