Correlation Between Inverse Government and Amcap Fund

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Can any of the company-specific risk be diversified away by investing in both Inverse Government and Amcap Fund 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 Inverse Government and Amcap Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Inverse Government Long and Amcap Fund Class, you can compare the effects of market volatilities on Inverse Government and Amcap Fund 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 Inverse Government with a short position of Amcap Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inverse Government and Amcap Fund.

Diversification Opportunities for Inverse Government and Amcap Fund

-0.78
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between Inverse and Amcap is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Government Long and Amcap Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amcap Fund Class and Inverse Government 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 Inverse Government Long are associated (or correlated) with Amcap Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amcap Fund Class has no effect on the direction of Inverse Government i.e., Inverse Government and Amcap Fund go up and down completely randomly.

Pair Corralation between Inverse Government and Amcap Fund

Assuming the 90 days horizon Inverse Government Long is expected to generate 1.0 times more return on investment than Amcap Fund. However, Inverse Government is 1.0 times more volatile than Amcap Fund Class. It trades about -0.09 of its potential returns per unit of risk. Amcap Fund Class is currently generating about -0.11 per unit of risk. If you would invest  18,528  in Inverse Government Long on November 28, 2024 and sell it today you would lose (287.00) from holding Inverse Government Long or give up 1.55% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Inverse Government Long  vs.  Amcap Fund Class

 Performance 
       Timeline  
Inverse Government Long 

Risk-Adjusted Performance

OK

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Inverse Government Long are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Inverse Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Amcap Fund Class 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Amcap Fund Class has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Amcap Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Inverse Government and Amcap Fund Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Inverse Government and Amcap Fund

The main advantage of trading using opposite Inverse Government and Amcap Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Inverse Government position performs unexpectedly, Amcap Fund 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 Amcap Fund will offset losses from the drop in Amcap Fund's long position.
The idea behind Inverse Government Long and Amcap Fund Class pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.

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