Correlation Between Fabxx and American Funds

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

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

Diversification Opportunities for Fabxx and American Funds

-0.02

Correlation Coefficient

Fabxx  American Funds

Good diversification

The 3 months correlation between Fabxx and American is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Fabxx and American Funds Retirement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Retirement and Fabxx 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 Fabxx 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 Retirement has no effect on the direction of Fabxx i.e., Fabxx and American Funds go up and down completely randomly.

Pair Corralation between Fabxx and American Funds

Assuming the 90 days horizon Fabxx is expected to under-perform the American Funds. In addition to that, Fabxx is 13.4 times more volatile than American Funds Retirement. It trades about -0.03 of its total potential returns per unit of risk. American Funds Retirement is currently generating about 0.1 per unit of volatility. If you would invest  1,068  in American Funds Retirement on September 12, 2024 and sell it today you would earn a total of  136.00  from holding American Funds Retirement or generate 12.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	88.95%
Values	Daily Returns

Fabxx  vs.  American Funds Retirement

Fabxx

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fabxx has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

American Funds Retirement

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds Retirement are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Fabxx and American Funds

The main advantage of trading using opposite Fabxx and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fabxx 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.

The idea behind Fabxx and American Funds Retirement 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.