Correlation Between American Mutual and American Beacon

Can any of the company-specific risk be diversified away by investing in both American Mutual and American Beacon 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 Mutual and American Beacon into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American Mutual Fund and American Beacon Large, you can compare the effects of market volatilities on American Mutual and American Beacon 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 Mutual with a short position of American Beacon. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Mutual and American Beacon.

Diversification Opportunities for American Mutual and American Beacon

0.91

Correlation Coefficient

American Mutual  American Beacon

Almost no diversification

The 3 months correlation between American and American is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding American Mutual Fund and American Beacon Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Large and American Mutual 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 Mutual Fund are associated (or correlated) with American Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Beacon Large has no effect on the direction of American Mutual i.e., American Mutual and American Beacon go up and down completely randomly.

Pair Corralation between American Mutual and American Beacon

Assuming the 90 days horizon American Mutual is expected to generate 1.09 times less return on investment than American Beacon. But when comparing it to its historical volatility, American Mutual Fund is 1.28 times less risky than American Beacon. It trades about 0.1 of its potential returns per unit of risk. American Beacon Large is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,746  in American Beacon Large on June 29, 2024 and sell it today you would earn a total of  773.00  from holding American Beacon Large or generate 44.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

American Mutual Fund  vs.  American Beacon Large

American Mutual

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Mutual Fund are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, American Mutual may actually be approaching a critical reversion point that can send shares even higher in October 2024.

American Beacon Large

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Beacon Large are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, American Beacon may actually be approaching a critical reversion point that can send shares even higher in October 2024.

Pair Trading with American Mutual and American Beacon

The main advantage of trading using opposite American Mutual and American Beacon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Mutual position performs unexpectedly, American Beacon 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 Beacon will offset losses from the drop in American Beacon's long position.

The idea behind American Mutual Fund and American Beacon Large pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.