Correlation Between 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.
By analyzing existing cross correlation between American Balanced Fund and American Funds Balanced, 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.

Diversification Opportunities for American Balanced and American Funds

0.99
  Correlation Coefficient

No risk reduction

The 3 months correlation between American and American is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding AMERICAN BALANCED FUND and AMERICAN FUNDS BALANCED in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Balanced 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 Fund 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 Balanced 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 Fund is expected to generate 1.01 times more return on investment than American Funds. However, American Balanced is 1.01 times more volatile than American Funds Balanced. It trades about 0.3 of its potential returns per unit of risk. American Funds Balanced is currently generating about 0.28 per unit of risk. If you would invest  3,281  in American Balanced Fund on December 29, 2023 and sell it today you would earn a total of  101.00  from holding American Balanced Fund or generate 3.08% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

AMERICAN BALANCED FUND  vs.  AMERICAN FUNDS BALANCED

 Performance 
       Timeline  
American Balanced Fund 

Risk-Adjusted Performance

16 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in American Balanced Fund are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and 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.
American Funds Balanced 

Risk-Adjusted Performance

14 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in American Funds Balanced are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. 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 Fund and American Funds 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.
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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.

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