Correlation Between American Beacon and Dow Jones
Can any of the company-specific risk be diversified away by investing in both American Beacon and Dow Jones 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 Beacon and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Beacon Stephens and Dow Jones Industrial, you can compare the effects of market volatilities on American Beacon and Dow Jones 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 Beacon with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Beacon and Dow Jones.
Diversification Opportunities for American Beacon and Dow Jones
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between American and Dow is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding American Beacon Stephens and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial and American Beacon 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 Beacon Stephens are associated (or correlated) with Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of American Beacon i.e., American Beacon and Dow Jones go up and down completely randomly.
Pair Corralation between American Beacon and Dow Jones
Assuming the 90 days horizon American Beacon Stephens is expected to generate 1.47 times more return on investment than Dow Jones. However, American Beacon is 1.47 times more volatile than Dow Jones Industrial. It trades about 0.32 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.37 per unit of risk. If you would invest 1,534 in American Beacon Stephens on September 1, 2024 and sell it today you would earn a total of 154.00 from holding American Beacon Stephens or generate 10.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
American Beacon Stephens vs. Dow Jones Industrial
Performance |
| Timeline |
American Beacon and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
American Beacon Stephens
Pair trading matchups for American Beacon
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with American Beacon and Dow Jones
The main advantage of trading using opposite American Beacon and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Beacon position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.| American Beacon vs. 1919 Financial Services | American Beacon vs. Blackrock Financial Institutions | American Beacon vs. Vanguard Financials Index | American Beacon vs. John Hancock Financial |
| Dow Jones vs. Catalyst Pharmaceuticals | Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. National CineMedia | Dow Jones vs. Mink Therapeutics |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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