Correlation Between AAM SP and AMERICAN FUNDS

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

Diversification Opportunities for AAM SP and AMERICAN FUNDS

0.96
  Correlation Coefficient

Almost no diversification

The 3 months correlation between AAM SP and AMERICAN is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding AAM SP Developed 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 AAM SP 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 AAM SP Developed 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 AAM SP i.e., AAM SP and AMERICAN FUNDS go up and down completely randomly.

Pair Corralation between AAM SP and AMERICAN FUNDS

Given the investment horizon of 90 days AAM SP Developed is expected to generate 0.92 times more return on investment than AMERICAN FUNDS. However, AAM SP Developed is 1.09 times less risky than AMERICAN FUNDS. It trades about -0.01 of its potential returns per unit of risk. AMERICAN FUNDS DEVELOPING is currently generating about -0.03 per unit of risk. If you would invest  2,292  in AAM SP Developed on October 30, 2022 and sell it today you would lose (86.00)  from holding AAM SP Developed or give up 3.75% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

AAM SP Developed  vs.  AMERICAN FUNDS DEVELOPING

 Performance (%) 
       Timeline  
AAM SP Developed 
AAM SP Performance
20 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in AAM SP Developed are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, AAM SP showed solid returns over the last few months and may actually be approaching a breakup point.

AAM SP Price Channel

AMERICAN FUNDS DEVELOPING 
AMERICAN Performance
26 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in AMERICAN FUNDS DEVELOPING are ranked lower than 26 (%) 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

AAM SP and AMERICAN FUNDS Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with AAM SP and AMERICAN FUNDS

The main advantage of trading using opposite AAM SP and AMERICAN FUNDS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AAM SP 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 AAM SP Developed 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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