Correlation Between Disciplined Growth and American Beacon

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

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

Diversification Opportunities for Disciplined Growth and American Beacon

0.99

Correlation Coefficient

Disciplined Growth  American Beacon

No risk reduction

The 3 months correlation between Disciplined and American is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Disciplined Growth Fund and American Beacon Bridgeway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Bridgeway and Disciplined Growth 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 Disciplined Growth Fund are associated (or correlated) with American Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Beacon Bridgeway has no effect on the direction of Disciplined Growth i.e., Disciplined Growth and American Beacon go up and down completely randomly.

Pair Corralation between Disciplined Growth and American Beacon

Assuming the 90 days horizon Disciplined Growth Fund is expected to generate 1.02 times more return on investment than American Beacon. However, Disciplined Growth is 1.02 times more volatile than American Beacon Bridgeway. It trades about 0.12 of its potential returns per unit of risk. American Beacon Bridgeway is currently generating about 0.11 per unit of risk. If you would invest  1,770  in Disciplined Growth Fund on September 12, 2024 and sell it today you would earn a total of  869.00  from holding Disciplined Growth Fund or generate 49.1% return on investment over 90 days.

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

Disciplined Growth Fund  vs.  American Beacon Bridgeway

Disciplined Growth

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Disciplined Growth Fund are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Disciplined Growth may actually be approaching a critical reversion point that can send shares even higher in January 2025.

American Beacon Bridgeway

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Beacon Bridgeway are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, American Beacon may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Disciplined Growth and American Beacon

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

The idea behind Disciplined Growth Fund and American Beacon Bridgeway 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .