Can any of the company-specific risk be diversified away by investing in both American Funds and Grandeur Peak 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 Grandeur Peak into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds Smallcap and Grandeur Peak Global, you can compare the effects of market volatilities on American Funds and Grandeur Peak 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 Grandeur Peak. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Grandeur Peak.
Diversification Opportunities for American Funds and Grandeur Peak
The 3 months correlation between American and Grandeur is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Smallcap and Grandeur Peak Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grandeur Peak Global 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 Smallcap are associated (or correlated) with Grandeur Peak. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grandeur Peak Global has no effect on the direction of American Funds i.e., American Funds and Grandeur Peak go up and down completely randomly.
Pair Corralation between American Funds and Grandeur Peak
Assuming the 90 days horizon American Funds is expected to generate 2.41 times less return on investment than Grandeur Peak. In addition to that, American Funds is 1.07 times more volatile than Grandeur Peak Global. It trades about 0.04 of its total potential returns per unit of risk. Grandeur Peak Global is currently generating about 0.1 per unit of volatility. If you would invest 357.00 in Grandeur Peak Global on March 6, 2024 and sell it today you would earn a total of 4.00 from holding Grandeur Peak Global or generate 1.12% return on investment over 90 days.
Over the last 90 days American Funds Smallcap has generated negative risk-adjusted returns adding no value to fund investors. 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.
Over the last 90 days Grandeur Peak Global has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Grandeur Peak is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.