Correlation Between State Street and American Funds

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Can any of the company-specific risk be diversified away by investing in both State Street 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 State Street and American Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between State Street Target and American Funds 2035, you can compare the effects of market volatilities on State Street 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 State Street with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of State Street and American Funds.

Diversification Opportunities for State Street and American Funds

0.95
  Correlation Coefficient

Almost no diversification

The 3 months correlation between State and American is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding STATE STREET TARGET and AMERICAN FUNDS 2035 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds 2035 and State Street 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 State Street Target 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 2035 has no effect on the direction of State Street i.e., State Street and American Funds go up and down completely randomly.

Pair Corralation between State Street and American Funds

Assuming the 90 days horizon State Street is expected to generate 1.02 times less return on investment than American Funds. But when comparing it to its historical volatility, State Street Target is 1.13 times less risky than American Funds. It trades about 0.29 of its potential returns per unit of risk. American Funds 2035 is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  1,761  in American Funds 2035 on December 29, 2023 and sell it today you would earn a total of  48.00  from holding American Funds 2035 or generate 2.73% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

STATE STREET TARGET  vs.  AMERICAN FUNDS 2035

 Performance 
       Timeline  
State Street Target 

Risk-Adjusted Performance

11 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in State Street Target are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward-looking signals, State Street is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
American Funds 2035 

Risk-Adjusted Performance

14 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in American Funds 2035 are ranked lower than 14 (%) 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.

State Street and American Funds Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with State Street and American Funds

The main advantage of trading using opposite State Street and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if State Street 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 State Street Target and American Funds 2035 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.

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