Correlation Between Gabelli Equity and American Funds

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

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

Diversification Opportunities for Gabelli Equity and American Funds

0.81

Correlation Coefficient

Gabelli Equity  American Funds

Very poor diversification

The 3 months correlation between Gabelli and American is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Gabelli Equity Trust and American Funds Fundamental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Funda and Gabelli Equity 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 Gabelli Equity Trust 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 Funda has no effect on the direction of Gabelli Equity i.e., Gabelli Equity and American Funds go up and down completely randomly.

Pair Corralation between Gabelli Equity and American Funds

Considering the 90-day investment horizon Gabelli Equity is expected to generate 1.05 times less return on investment than American Funds. But when comparing it to its historical volatility, Gabelli Equity Trust is 1.91 times less risky than American Funds. It trades about 0.67 of its potential returns per unit of risk. American Funds Fundamental is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest  7,620  in American Funds Fundamental on February 21, 2024 and sell it today you would earn a total of  466.00  from holding American Funds Fundamental or generate 6.12% return on investment over 90 days.

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

Gabelli Equity Trust  vs.  American Funds Fundamental

Gabelli Equity Trust

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gabelli Equity Trust are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat unsteady basic indicators, Gabelli Equity may actually be approaching a critical reversion point that can send shares even higher in June 2024.

American Funds Funda

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds Fundamental are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, American Funds may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Gabelli Equity and American Funds

The main advantage of trading using opposite Gabelli Equity and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gabelli Equity 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 Gabelli Equity Trust and American Funds Fundamental 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.