Correlation Between Payden Emerging and American Funds

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

By analyzing existing cross correlation between Payden Emerging Markets and American Funds 2010, you can compare the effects of market volatilities on Payden Emerging 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 Payden Emerging with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Payden Emerging and American Funds.

Diversification Opportunities for Payden Emerging and American Funds

0.88

Correlation Coefficient

Payden Emerging  American Funds

Very poor diversification

The 3 months correlation between Payden and American is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Payden Emerging Markets and American Funds 2010 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds 2010 and Payden Emerging 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 Payden Emerging Markets 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 2010 has no effect on the direction of Payden Emerging i.e., Payden Emerging and American Funds go up and down completely randomly.

Pair Corralation between Payden Emerging and American Funds

Assuming the 90 days horizon Payden Emerging is expected to generate 1.32 times less return on investment than American Funds. But when comparing it to its historical volatility, Payden Emerging Markets is 2.97 times less risky than American Funds. It trades about 0.31 of its potential returns per unit of risk. American Funds 2010 is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,026  in American Funds 2010 on January 25, 2024 and sell it today you would earn a total of  106.00  from holding American Funds 2010 or generate 10.33% return on investment over 90 days.

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

Payden Emerging Markets  vs.  American Funds 2010

Payden Emerging Markets

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Payden Emerging Markets are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Payden Emerging is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Funds 2010

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds 2010 are ranked lower than 2 (%) 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 Payden Emerging and American Funds

The main advantage of trading using opposite Payden Emerging and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Payden Emerging 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 Payden Emerging Markets and American Funds 2010 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 the Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.