Correlation Between New Perspective and Investment
Can any of the company-specific risk be diversified away by investing in both New Perspective and Investment 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 Perspective and Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between New Perspective Fund and Investment Of America, you can compare the effects of market volatilities on New Perspective and Investment 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 Perspective with a short position of Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Perspective and Investment.
Diversification Opportunities for New Perspective and Investment
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between New and Investment is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding New Perspective Fund and Investment Of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investment Of America and New Perspective 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 Perspective Fund are associated (or correlated) with Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investment Of America has no effect on the direction of New Perspective i.e., New Perspective and Investment go up and down completely randomly.
Pair Corralation between New Perspective and Investment
Assuming the 90 days horizon New Perspective is expected to generate 1.83 times less return on investment than Investment. In addition to that, New Perspective is 1.06 times more volatile than Investment Of America. It trades about 0.05 of its total potential returns per unit of risk. Investment Of America is currently generating about 0.11 per unit of volatility. If you would invest 5,555 in Investment Of America on August 25, 2024 and sell it today you would earn a total of 612.00 from holding Investment Of America or generate 11.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
New Perspective Fund vs. Investment Of America
Performance |
| Timeline |
| New Perspective |
| Investment Of America |
New Perspective and Investment Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with New Perspective and Investment
The main advantage of trading using opposite New Perspective and Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Perspective position performs unexpectedly, Investment 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 Investment will offset losses from the drop in Investment's long position.| New Perspective vs. Washington Mutual Investors | New Perspective vs. American Balanced Fund | New Perspective vs. New World Fund | New Perspective vs. Europacific Growth Fund |
| Investment vs. Baron Health Care | Investment vs. Fidelity Advisor Health | Investment vs. Delaware Healthcare Fund | Investment vs. Highland Longshort Healthcare |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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