Correlation Between American Balanced and American Funds

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

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

Diversification Opportunities for American Balanced and American Funds

0.91
  Correlation Coefficient
American Balanced
American Funds Moderate

Almost no diversification

The 3 months correlation between American and American is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced and American Funds Moderate in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on American Funds Moderate and American 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 American Balanced 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 Moderate has no effect on the direction of American Balanced i.e., American Balanced and American Funds go up and down completely randomly.

Pair Corralation between American Balanced and American Funds

Assuming the 90 days horizon American Balanced is expected to generate 1.12 times less return on investment than American Funds. But when comparing it to its historical volatility, American Balanced is 1.03 times less risky than American Funds. It trades about 0.05 of its potential returns per unit of risk. American Funds Moderate is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,501  in American Funds Moderate on September 5, 2021 and sell it today you would earn a total of  370.00  from holding American Funds Moderate or generate 24.65% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy99.79%
ValuesDaily Returns

American Balanced  vs.  American Funds Moderate

 Performance (%) 
      Timeline 
American Balanced 
American Performance
0 of 100
Over the last 90 days American Balanced has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, American Balanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
American Funds Moderate 
American Performance
0 of 100
Over the last 90 days American Funds Moderate has generated negative risk-adjusted returns adding no value to fund investors. 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.

American Balanced and American Funds Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with American Balanced and American Funds

The main advantage of trading using opposite American Balanced and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Balanced 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 American Balanced and American Funds Moderate 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.

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