Correlation Between Balanced Fund and American Funds
Can any of the company-specific risk be diversified away by investing in both Balanced Fund and American Funds 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 Balanced Fund and American Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Balanced Fund Investor and American Funds New, you can compare the effects of market volatilities on Balanced Fund and American Funds 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 Balanced Fund with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Balanced Fund and American Funds.
Diversification Opportunities for Balanced Fund and American Funds
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Balanced and American is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Balanced Fund Investor and American Funds New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds New and Balanced Fund 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 Balanced Fund Investor are associated (or correlated) with American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds New has no effect on the direction of Balanced Fund i.e., Balanced Fund and American Funds go up and down completely randomly.
Pair Corralation between Balanced Fund and American Funds
Assuming the 90 days horizon Balanced Fund Investor is expected to generate 0.73 times more return on investment than American Funds. However, Balanced Fund Investor is 1.37 times less risky than American Funds. It trades about 0.09 of its potential returns per unit of risk. American Funds New is currently generating about 0.06 per unit of risk. If you would invest 1,570 in Balanced Fund Investor on August 24, 2024 and sell it today you would earn a total of 422.00 from holding Balanced Fund Investor or generate 26.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Balanced Fund Investor vs. American Funds New
Performance |
| Timeline |
| Balanced Fund Investor |
| American Funds New |
Balanced Fund and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Balanced Fund and American Funds
The main advantage of trading using opposite Balanced Fund and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Balanced Fund position performs unexpectedly, American Funds 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 American Funds will offset losses from the drop in American Funds' long position.| Balanced Fund vs. Select Fund Investor | Balanced Fund vs. Heritage Fund Investor | Balanced Fund vs. Value Fund Investor | Balanced Fund vs. Growth Fund Investor |
| American Funds vs. Balanced Fund Investor | American Funds vs. Rbc Microcap Value | American Funds vs. Ab Value Fund | American Funds vs. T Rowe Price |
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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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