Correlation Between American Balanced and Vanguard Total
Can any of the company-specific risk be diversified away by investing in both American Balanced and Vanguard Total 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 Balanced and Vanguard Total into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Balanced Fund and Vanguard Total Bond, you can compare the effects of market volatilities on American Balanced and Vanguard Total 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 Balanced with a short position of Vanguard Total. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Balanced and Vanguard Total.
Diversification Opportunities for American Balanced and Vanguard Total
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between American and Vanguard is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced Fund and Vanguard Total Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Total Bond and American Balanced 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 Balanced Fund are associated (or correlated) with Vanguard Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Total Bond has no effect on the direction of American Balanced i.e., American Balanced and Vanguard Total go up and down completely randomly.
Pair Corralation between American Balanced and Vanguard Total
Assuming the 90 days horizon American Balanced Fund is expected to under-perform the Vanguard Total. In addition to that, American Balanced is 1.2 times more volatile than Vanguard Total Bond. It trades about -0.29 of its total potential returns per unit of risk. Vanguard Total Bond is currently generating about -0.22 per unit of volatility. If you would invest 938.00 in Vanguard Total Bond on January 24, 2024 and sell it today you would lose (17.00) from holding Vanguard Total Bond or give up 1.81% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Balanced Fund vs. Vanguard Total Bond
Performance |
| Timeline |
| American Balanced |
| Vanguard Total Bond |
American Balanced and Vanguard Total Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Balanced and Vanguard Total
The main advantage of trading using opposite American Balanced and Vanguard Total positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Balanced position performs unexpectedly, Vanguard Total 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 Vanguard Total will offset losses from the drop in Vanguard Total's long position.| American Balanced vs. Income Fund Of | American Balanced vs. New World Fund | American Balanced vs. American Mutual Fund | American Balanced vs. American Mutual Fund |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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