Correlation Between New Economy and American Funds
Can any of the company-specific risk be diversified away by investing in both New Economy 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 Economy 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 Economy Fund and American Funds 2040, you can compare the effects of market volatilities on New Economy 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 Economy with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Economy and American Funds.
Diversification Opportunities for New Economy and American Funds
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between New and American is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding New Economy Fund and American Funds 2040 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds 2040 and New Economy 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 Economy 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 2040 has no effect on the direction of New Economy i.e., New Economy and American Funds go up and down completely randomly.
Pair Corralation between New Economy and American Funds
Assuming the 90 days horizon New Economy Fund is expected to generate 1.63 times more return on investment than American Funds. However, New Economy is 1.63 times more volatile than American Funds 2040. It trades about 0.1 of its potential returns per unit of risk. American Funds 2040 is currently generating about 0.1 per unit of risk. If you would invest 6,733 in New Economy Fund on August 29, 2024 and sell it today you would earn a total of 139.00 from holding New Economy Fund or generate 2.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
New Economy Fund vs. American Funds 2040
Performance |
| Timeline |
| New Economy Fund |
| American Funds 2040 |
New Economy and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with New Economy and American Funds
The main advantage of trading using opposite New Economy and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Economy 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 Economy vs. Artisan Global Unconstrained | New Economy vs. Scharf Global Opportunity | New Economy vs. Ab Global Risk | New Economy vs. Morgan Stanley Global |
| American Funds vs. Alger Health Sciences | American Funds vs. Live Oak Health | American Funds vs. The Gabelli Healthcare | American Funds vs. Baillie Gifford Health |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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