Correlation Between NEW WORLD and AMERICAN FUNDS

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

Diversification Opportunities for NEW WORLD and AMERICAN FUNDS

0.98
  Correlation Coefficient

Almost no diversification

The 3 months correlation between CNWAX and AMERICAN is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding NEW WORLD FUND and AMERICAN FUNDS DEVELOPING in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AMERICAN FUNDS DEVELOPING and NEW WORLD 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 NEW WORLD FUND 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 DEVELOPING has no effect on the direction of NEW WORLD i.e., NEW WORLD and AMERICAN FUNDS go up and down completely randomly.

Pair Corralation between NEW WORLD and AMERICAN FUNDS

Assuming the 90 days horizon NEW WORLD is expected to generate 1.56 times less return on investment than AMERICAN FUNDS. In addition to that, NEW WORLD is 1.04 times more volatile than AMERICAN FUNDS DEVELOPING. It trades about 0.04 of its total potential returns per unit of risk. AMERICAN FUNDS DEVELOPING is currently generating about 0.07 per unit of volatility. If you would invest  953.00  in AMERICAN FUNDS DEVELOPING on November 4, 2022 and sell it today you would earn a total of  89.00  from holding AMERICAN FUNDS DEVELOPING or generate 9.34% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

NEW WORLD FUND  vs.  AMERICAN FUNDS DEVELOPING

 Performance (%) 
       Timeline  
NEW WORLD FUND 
CNWAX Performance
16 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in NEW WORLD FUND are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, NEW WORLD showed solid returns over the last few months and may actually be approaching a breakup point.

CNWAX Price Channel

AMERICAN FUNDS DEVELOPING 
AMERICAN Performance
21 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in AMERICAN FUNDS DEVELOPING are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, AMERICAN FUNDS showed solid returns over the last few months and may actually be approaching a breakup point.

AMERICAN Price Channel

NEW WORLD and AMERICAN FUNDS Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with NEW WORLD and AMERICAN FUNDS

The main advantage of trading using opposite NEW WORLD and AMERICAN FUNDS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NEW WORLD 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's long position.
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The idea behind NEW WORLD FUND and AMERICAN FUNDS DEVELOPING 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.

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