Correlation Between American Balanced and Permanent Portfolio

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

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

Diversification Opportunities for American Balanced and Permanent Portfolio

0.89

Correlation Coefficient

American Balanced  Permanent Portfolio

Very poor diversification

The 3 months correlation between American and PERMANENT is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced and Permanent Portfolio Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Permanent Portfolio Class 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 Permanent Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Permanent Portfolio Class has no effect on the direction of American Balanced i.e., American Balanced and Permanent Portfolio go up and down completely randomly.

Pair Corralation between American Balanced and Permanent Portfolio

Assuming the 90 days horizon American Balanced is expected to generate 2.18 times less return on investment than Permanent Portfolio. But when comparing it to its historical volatility, American Balanced is 1.11 times less risky than Permanent Portfolio. It trades about 0.15 of its potential returns per unit of risk. Permanent Portfolio Class is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  5,790  in Permanent Portfolio Class on August 31, 2024 and sell it today you would earn a total of  579.00  from holding Permanent Portfolio Class or generate 10.0% return on investment over 90 days.

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

American Balanced  vs.  Permanent Portfolio Class

American Balanced

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Balanced are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, American Balanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Permanent Portfolio Class

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Permanent Portfolio Class are ranked lower than 23 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Permanent Portfolio may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with American Balanced and Permanent Portfolio

The main advantage of trading using opposite American Balanced and Permanent Portfolio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Balanced position performs unexpectedly, Permanent Portfolio 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 Permanent Portfolio will offset losses from the drop in Permanent Portfolio's long position.

The idea behind American Balanced and Permanent Portfolio Class 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.