Correlation Between American Funds and American Balanced
Can any of the company-specific risk be diversified away by investing in both American Funds 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 American Funds and American Balanced into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds Income and American Balanced Fund, you can compare the effects of market volatilities on American Funds 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 American Funds with a short position of American Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and American Balanced.
Diversification Opportunities for American Funds and American Balanced
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between American and American is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Income and American Balanced Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Balanced 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 Income 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 American Funds i.e., American Funds and American Balanced go up and down completely randomly.
Pair Corralation between American Funds and American Balanced
Assuming the 90 days horizon American Funds Income is expected to under-perform the American Balanced. But the mutual fund apears to be less risky and, when comparing its historical volatility, American Funds Income is 1.05 times less risky than American Balanced. The mutual fund trades about -0.18 of its potential returns per unit of risk. The American Balanced Fund is currently generating about -0.15 of returns per unit of risk over similar time horizon. If you would invest 3,333 in American Balanced Fund on January 19, 2024 and sell it today you would lose (57.00) from holding American Balanced Fund or give up 1.71% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds Income vs. American Balanced Fund
Performance |
| Timeline |
| American Funds Me |
| American Balanced |
American Funds and American Balanced Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and American Balanced
The main advantage of trading using opposite American Funds and American Balanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds 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.| American Funds vs. Permanent Portfolio Class | American Funds vs. Large Cap Fund | American Funds vs. Westcore Plus Bond |
| American Balanced vs. HUMANA INC | American Balanced vs. Aquagold International | American Balanced vs. Spring Valley Acquisition |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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