Correlation Between American Funds and Bond Fund
Can any of the company-specific risk be diversified away by investing in both American Funds and Bond 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 American Funds and Bond Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds Tax Exempt and Bond Fund Of, you can compare the effects of market volatilities on American Funds and Bond 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 American Funds with a short position of Bond Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Bond Fund.
Diversification Opportunities for American Funds and Bond Fund
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Bond is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Tax Exempt and Bond Fund Of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bond 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 Tax Exempt are associated (or correlated) with Bond Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bond Fund has no effect on the direction of American Funds i.e., American Funds and Bond Fund go up and down completely randomly.
Pair Corralation between American Funds and Bond Fund
Assuming the 90 days horizon American Funds is expected to generate 1.21 times less return on investment than Bond Fund. But when comparing it to its historical volatility, American Funds Tax Exempt is 2.3 times less risky than Bond Fund. It trades about 0.16 of its potential returns per unit of risk. Bond Fund Of is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,128 in Bond Fund Of on September 1, 2024 and sell it today you would earn a total of 7.00 from holding Bond Fund Of or generate 0.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds Tax Exempt vs. Bond Fund Of
Performance |
| Timeline |
| American Funds Tax |
| Bond Fund |
American Funds and Bond Fund Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Bond Fund
The main advantage of trading using opposite American Funds and Bond Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Bond 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 Bond Fund will offset losses from the drop in Bond Fund's long position.| American Funds vs. Tiaa Cref Smallmid Cap Equity | American Funds vs. The Gabelli Small | American Funds vs. Aqr Diversified Arbitrage | American Funds vs. Davenport Small Cap |
| Bond Fund vs. American High Income | Bond Fund vs. Europacific Growth Fund | Bond Fund vs. Capital World Bond | Bond Fund vs. Growth Fund Of |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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