Correlation Between Materials Portfolio and American Funds

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

By analyzing existing cross correlation between Materials Portfolio Fidelity and American Funds 2025, you can compare the effects of market volatilities on Materials Portfolio 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 Materials Portfolio with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Materials Portfolio and American Funds.

Diversification Opportunities for Materials Portfolio and American Funds

0.64

Correlation Coefficient

Materials Portfolio  American Funds

Poor diversification

The 3 months correlation between Materials and American is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Materials Portfolio Fidelity and American Funds 2025 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds 2025 and Materials Portfolio 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 Materials Portfolio Fidelity 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 2025 has no effect on the direction of Materials Portfolio i.e., Materials Portfolio and American Funds go up and down completely randomly.

Pair Corralation between Materials Portfolio and American Funds

Assuming the 90 days horizon Materials Portfolio Fidelity is expected to under-perform the American Funds. In addition to that, Materials Portfolio is 2.73 times more volatile than American Funds 2025. It trades about -0.09 of its total potential returns per unit of risk. American Funds 2025 is currently generating about -0.07 per unit of volatility. If you would invest  1,469  in American Funds 2025 on February 4, 2024 and sell it today you would lose (11.00) from holding American Funds 2025 or give up 0.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Materials Portfolio Fidelity  vs.  American Funds 2025

Materials Portfolio

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Materials Portfolio Fidelity are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Materials Portfolio may actually be approaching a critical reversion point that can send shares even higher in June 2024.

American Funds 2025

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds 2025 are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Materials Portfolio and American Funds

The main advantage of trading using opposite Materials Portfolio and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Materials Portfolio 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' long position.

The idea behind Materials Portfolio Fidelity and American Funds 2025 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.