Correlation Between American Balanced and 1919 Socially

Can any of the company-specific risk be diversified away by investing in both American Balanced and 1919 Socially 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 1919 Socially into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American Balanced and 1919 Socially Responsive, you can compare the effects of market volatilities on American Balanced and 1919 Socially 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 1919 Socially. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Balanced and 1919 Socially.

Diversification Opportunities for American Balanced and 1919 Socially

0.92

Correlation Coefficient

American Balanced  1919 Socially

Almost no diversification

The 3 months correlation between American and 1919 is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced and 1919 Socially Responsive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 1919 Socially Responsive 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 1919 Socially. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 1919 Socially Responsive has no effect on the direction of American Balanced i.e., American Balanced and 1919 Socially go up and down completely randomly.

Pair Corralation between American Balanced and 1919 Socially

Assuming the 90 days horizon American Balanced is expected to generate 0.9 times more return on investment than 1919 Socially. However, American Balanced is 1.12 times less risky than 1919 Socially. It trades about 0.14 of its potential returns per unit of risk. 1919 Socially Responsive is currently generating about 0.12 per unit of risk. If you would invest  3,317  in American Balanced on September 3, 2024 and sell it today you would earn a total of  377.00  from holding American Balanced or generate 11.37% return on investment over 90 days.

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

American Balanced  vs.  1919 Socially Responsive

American Balanced

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Balanced are ranked lower than 12 (%) 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.

1919 Socially Responsive

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in 1919 Socially Responsive are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, 1919 Socially is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with American Balanced and 1919 Socially

The main advantage of trading using opposite American Balanced and 1919 Socially positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Balanced position performs unexpectedly, 1919 Socially 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 1919 Socially will offset losses from the drop in 1919 Socially's long position.

The idea behind American Balanced and 1919 Socially Responsive 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.