Correlation Between Extended Market and American Funds
Can any of the company-specific risk be diversified away by investing in both Extended Market 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 Extended Market and American Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Extended Market Index and American Funds 2065, you can compare the effects of market volatilities on Extended Market 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 Extended Market with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Extended Market and American Funds.
Diversification Opportunities for Extended Market and American Funds
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Extended and American is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Extended Market Index and American Funds 2065 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds 2065 and Extended Market 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 Extended Market Index 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 2065 has no effect on the direction of Extended Market i.e., Extended Market and American Funds go up and down completely randomly.
Pair Corralation between Extended Market and American Funds
Assuming the 90 days horizon Extended Market Index is expected to generate 1.56 times more return on investment than American Funds. However, Extended Market is 1.56 times more volatile than American Funds 2065. It trades about 0.07 of its potential returns per unit of risk. American Funds 2065 is currently generating about 0.1 per unit of risk. If you would invest 2,076 in Extended Market Index on September 14, 2024 and sell it today you would earn a total of 384.00 from holding Extended Market Index or generate 18.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Extended Market Index vs. American Funds 2065
Performance |
| Timeline |
| Extended Market Index |
| American Funds 2065 |
Extended Market and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Extended Market and American Funds
The main advantage of trading using opposite Extended Market and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Extended Market 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.| Extended Market vs. Income Fund Income | Extended Market vs. Usaa Nasdaq 100 | Extended Market vs. Victory Diversified Stock | Extended Market vs. Intermediate Term Bond Fund |
| American Funds vs. American Funds 2060 | American Funds vs. American Funds 2055 | American Funds vs. American Funds 2010 | American Funds vs. American Funds 2045 |
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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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