Correlation Between American Balanced and Plumb Balanced

By analyzing existing cross correlation between American Balanced and Plumb Balanced, you can compare the effects of market volatilities on American Balanced and Plumb Balanced 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 Plumb Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Balanced and Plumb Balanced.

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Can any of the company-specific risk be diversified away by investing in both American Balanced and Plumb Balanced 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 Plumb Balanced into the same portfolio, which is an essential part of the fundamental portfolio management process.

Diversification Opportunities for American Balanced and Plumb Balanced

0.0
  Correlation Coefficient
American Balanced
Plumb Balanced

Pay attention - limited upside

The 3 months correlation between American and Plumb is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced and Plumb Balanced in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Plumb Balanced 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 are associated (or correlated) with Plumb Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plumb Balanced has no effect on the direction of American Balanced i.e., American Balanced and Plumb Balanced go up and down completely randomly.

Pair Corralation between American Balanced and Plumb Balanced

If you would invest  3,026  in American Balanced on October 20, 2021 and sell it today you would earn a total of  274.00  from holding American Balanced or generate 9.05% return on investment over 90 days.
Time Period3 Months [change]
DirectionFlat 
StrengthInsignificant
Accuracy0.0%
ValuesDaily Returns

American Balanced  vs.  Plumb Balanced

 Performance (%) 
      Timeline 
American Balanced 
American Performance
0 of 100
Over the last 90 days American Balanced has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, American Balanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Plumb Balanced 
Plumb Performance
0 of 100
Over the last 90 days Plumb Balanced has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, Plumb Balanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Balanced and Plumb Balanced Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with American Balanced and Plumb Balanced

The main advantage of trading using opposite American Balanced and Plumb Balanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Balanced position performs unexpectedly, Plumb Balanced 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 Plumb Balanced will offset losses from the drop in Plumb Balanced's long position.
The idea behind American Balanced and Plumb Balanced 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.

Plumb Balanced

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The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Plumb Balanced as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Plumb Balanced's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Plumb Balanced's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Plumb Balanced.
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.

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