Correlation Between Plumb Balanced and American Balanced

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

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

Diversification Opportunities for Plumb Balanced and American Balanced

0.5
  Correlation Coefficient
Plumb Balanced
American Balanced

Very weak diversification

The 12 months correlation between Plumb and American is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Plumb Balanced and American Balanced in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on American Balanced and Plumb Balanced 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 Plumb Balanced are associated (or correlated) with American Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Balanced has no effect on the direction of Plumb Balanced i.e., Plumb Balanced and American Balanced go up and down completely randomly.

Pair Corralation between Plumb Balanced and American Balanced

Assuming the 90 days horizon Plumb Balanced is expected to under-perform the American Balanced. In addition to that, Plumb Balanced is 1.93 times more volatile than American Balanced. It trades about 0.0 of its total potential returns per unit of risk. American Balanced is currently generating about 0.16 per unit of volatility. If you would invest  3,242  in American Balanced on October 19, 2021 and sell it today you would earn a total of  47.00  from holding American Balanced or generate 1.45% return on investment over 90 days.
Time Period12 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Plumb Balanced  vs.  American Balanced

 Performance (%) 
      Timeline 
Plumb Balanced 
Plumb Performance
0 of 100
Over the last 90 days Plumb Balanced has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, Plumb Balanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
American Balanced 
American Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in American Balanced are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, American Balanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Plumb Balanced and American Balanced Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Plumb Balanced and American Balanced

The main advantage of trading using opposite Plumb Balanced and American Balanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Plumb Balanced position performs unexpectedly, American Balanced 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 Balanced will offset losses from the drop in American Balanced's long position.
The idea behind Plumb Balanced and American Balanced 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.
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 Transaction History module to view history of all your transactions and understand their impact on performance.

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