Correlation Between Global Franchise and American Funds
Can any of the company-specific risk be diversified away by investing in both Global Franchise 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 Global Franchise and American Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Global Franchise Portfolio and American Funds Global, you can compare the effects of market volatilities on Global Franchise 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 Global Franchise with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Franchise and American Funds.
Diversification Opportunities for Global Franchise and American Funds
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Global and American is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Global Franchise Portfolio and American Funds Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Global and Global Franchise 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 Global Franchise Portfolio 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 Global has no effect on the direction of Global Franchise i.e., Global Franchise and American Funds go up and down completely randomly.
Pair Corralation between Global Franchise and American Funds
Assuming the 90 days horizon Global Franchise Portfolio is expected to generate 0.91 times more return on investment than American Funds. However, Global Franchise Portfolio is 1.1 times less risky than American Funds. It trades about -0.15 of its potential returns per unit of risk. American Funds Global is currently generating about -0.16 per unit of risk. If you would invest 3,565 in Global Franchise Portfolio on January 25, 2024 and sell it today you would lose (84.00) from holding Global Franchise Portfolio or give up 2.36% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Global Franchise Portfolio vs. American Funds Global
Performance |
Timeline |
Global Franchise Por |
American Funds Global |
Global Franchise and American Funds Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Global Franchise and American Funds
The main advantage of trading using opposite Global Franchise and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Franchise 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.Global Franchise vs. American Funds Capital | Global Franchise vs. American Funds Capital | Global Franchise vs. Capital World Growth | Global Franchise vs. Capital World Growth |
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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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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