Correlation Between Strategic Allocation and American Funds
Can any of the company-specific risk be diversified away by investing in both Strategic Allocation 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 Strategic Allocation and American Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Strategic Allocation Moderate and American Funds Balanced, you can compare the effects of market volatilities on Strategic Allocation 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 Strategic Allocation with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Strategic Allocation and American Funds.
Diversification Opportunities for Strategic Allocation and American Funds
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Strategic and American is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Strategic Allocation Moderate and American Funds Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Balanced and Strategic Allocation 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 Strategic Allocation Moderate 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 Balanced has no effect on the direction of Strategic Allocation i.e., Strategic Allocation and American Funds go up and down completely randomly.
Pair Corralation between Strategic Allocation and American Funds
Assuming the 90 days horizon Strategic Allocation is expected to generate 1.32 times less return on investment than American Funds. But when comparing it to its historical volatility, Strategic Allocation Moderate is 1.04 times less risky than American Funds. It trades about 0.06 of its potential returns per unit of risk. American Funds Balanced is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,683 in American Funds Balanced on January 26, 2024 and sell it today you would earn a total of 41.00 from holding American Funds Balanced or generate 2.44% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Strategic Allocation Moderate vs. American Funds Balanced
Performance |
Timeline |
Strategic Allocation |
American Funds Balanced |
Strategic Allocation and American Funds Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Strategic Allocation and American Funds
The main advantage of trading using opposite Strategic Allocation and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Strategic Allocation 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.Strategic Allocation vs. Fidelity Strategic Dividend | Strategic Allocation vs. HUMANA INC | Strategic Allocation vs. Aquagold International | Strategic Allocation vs. Morningstar Unconstrained Allocation |
American Funds vs. Fidelity Strategic Dividend | American Funds vs. HUMANA INC | American Funds vs. Aquagold International | American Funds vs. Morningstar Unconstrained Allocation |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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