Correlation Between American Funds and Large Capitalization

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

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

Diversification Opportunities for American Funds and Large Capitalization

0.0

Correlation Coefficient

American Funds  Large Capitalization

Pay attention - limited upside

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

Pair Corralation between American Funds and Large Capitalization

If you would invest  7,171  in American Funds The on March 21, 2024 and sell it today you would earn a total of  199.00  from holding American Funds The or generate 2.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

American Funds The  vs.  Large Capitalization Growth

American Funds

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds The are ranked lower than 5 (%) 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.

Large Capitalization

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Large Capitalization Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Large Capitalization is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with American Funds and Large Capitalization

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

The idea behind American Funds The and Large Capitalization Growth 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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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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.