Correlation Between AMERICAN FUNDS and International Business

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Can any of the company-specific risk be diversified away by investing in both AMERICAN FUNDS and International Business 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 International Business into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AMERICAN FUNDS DEVELOPING and International Business Machines, you can compare the effects of market volatilities on AMERICAN FUNDS and International Business 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 International Business. Check out your portfolio center. Please also check ongoing floating volatility patterns of AMERICAN FUNDS and International Business.

Diversification Opportunities for AMERICAN FUNDS and International Business

0.59
  Correlation Coefficient

Very weak diversification

The 3 months correlation between AMERICAN and International is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding AMERICAN FUNDS DEVELOPING and International Business Machine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Business 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 DEVELOPING are associated (or correlated) with International Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Business has no effect on the direction of AMERICAN FUNDS i.e., AMERICAN FUNDS and International Business go up and down completely randomly.

Pair Corralation between AMERICAN FUNDS and International Business

Assuming the 90 days horizon AMERICAN FUNDS DEVELOPING is expected to under-perform the International Business. But the mutual fund apears to be less risky and, when comparing its historical volatility, AMERICAN FUNDS DEVELOPING is 1.16 times less risky than International Business. The mutual fund trades about -0.05 of its potential returns per unit of risk. The International Business Machines is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  11,270  in International Business Machines on September 7, 2022 and sell it today you would earn a total of  3,480  from holding International Business Machines or generate 30.88% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

AMERICAN FUNDS DEVELOPING  vs.  International Business Machine

 Performance (%) 
       Timeline  
AMERICAN FUNDS DEVELOPING 
AMERICAN Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in AMERICAN FUNDS DEVELOPING are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, AMERICAN FUNDS is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

AMERICAN Price Channel

International Business 
International Performance
12 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in International Business Machines are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting fundamental drivers, International Business revealed solid returns over the last few months and may actually be approaching a breakup point.

International Price Channel

AMERICAN FUNDS and International Business Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with AMERICAN FUNDS and International Business

The main advantage of trading using opposite AMERICAN FUNDS and International Business positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AMERICAN FUNDS position performs unexpectedly, International Business 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 International Business will offset losses from the drop in International Business' long position.
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The idea behind AMERICAN FUNDS DEVELOPING and International Business Machines 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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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 Focused Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.

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