Correlation Between Value Fund and American Balanced
Can any of the company-specific risk be diversified away by investing in both Value Fund and American Balanced 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 Value Fund and American Balanced into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Value Fund Investor and American Balanced Fund, you can compare the effects of market volatilities on Value Fund and American Balanced 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 Value Fund with a short position of American Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Value Fund and American Balanced.
Diversification Opportunities for Value Fund and American Balanced
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Value and American is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Value Fund Investor and American Balanced Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Balanced and Value 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 Value Fund Investor are associated (or correlated) with American Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Balanced has no effect on the direction of Value Fund i.e., Value Fund and American Balanced go up and down completely randomly.
Pair Corralation between Value Fund and American Balanced
Assuming the 90 days horizon Value Fund Investor is expected to under-perform the American Balanced. In addition to that, Value Fund is 1.25 times more volatile than American Balanced Fund. It trades about -0.09 of its total potential returns per unit of risk. American Balanced Fund is currently generating about -0.01 per unit of volatility. If you would invest 3,693 in American Balanced Fund on September 12, 2024 and sell it today you would lose (3.00) from holding American Balanced Fund or give up 0.08% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Value Fund Investor vs. American Balanced Fund
Performance |
| Timeline |
| Value Fund Investor |
| American Balanced |
Value Fund and American Balanced Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Value Fund and American Balanced
The main advantage of trading using opposite Value Fund and American Balanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Value Fund position performs unexpectedly, American Balanced 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 Balanced will offset losses from the drop in American Balanced's long position.| Value Fund vs. International Growth Fund | Value Fund vs. Growth Fund Investor | Value Fund vs. Equity Income Fund | Value Fund vs. Ultra Fund Investor |
| American Balanced vs. Strategic Allocation Servative | American Balanced vs. Strategic Allocation Aggressive | American Balanced vs. Value Fund Investor | American Balanced vs. International Growth Fund |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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