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 Retirement 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
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between American and New is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Retirement 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 Retirement 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 Retirement is expected to generate 0.56 times more return on investment than New World. However, American Funds Retirement is 1.79 times less risky than New World. It trades about 0.07 of its potential returns per unit of risk. New World Fund is currently generating about -0.21 per unit of risk. If you would invest 1,277 in American Funds Retirement on August 30, 2024 and sell it today you would earn a total of 7.00 from holding American Funds Retirement or generate 0.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds Retirement vs. New World Fund
Performance |
| Timeline |
| American Funds Retirement |
| 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. Mirova Global Green | American Funds vs. Oklahoma Municipal Fund | American Funds vs. Sterling Capital Short | American Funds vs. Touchstone Ohio Tax |
| New World vs. Huber Capital Diversified | New World vs. Vanguard Strategic Small Cap | New World vs. The Gabelli Small | New World vs. Jhancock Diversified Macro |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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