Correlation Between American Balanced and Pacific Funds

Can any of the company-specific risk be diversified away by investing in both American Balanced and Pacific 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 Pacific 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 Pacific Funds Portfolio, you can compare the effects of market volatilities on American Balanced and Pacific 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 Pacific Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Balanced and Pacific Funds.

Diversification Opportunities for American Balanced and Pacific Funds

0.96

Correlation Coefficient

American Balanced  Pacific Funds

Almost no diversification

The 3 months correlation between American and Pacific is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced Fund and Pacific Funds Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific Funds Portfolio 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 Pacific Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific Funds Portfolio has no effect on the direction of American Balanced i.e., American Balanced and Pacific Funds go up and down completely randomly.

Pair Corralation between American Balanced and Pacific Funds

Assuming the 90 days horizon American Balanced is expected to generate 1.12 times less return on investment than Pacific Funds. In addition to that, American Balanced is 1.05 times more volatile than Pacific Funds Portfolio. It trades about 0.16 of its total potential returns per unit of risk. Pacific Funds Portfolio is currently generating about 0.19 per unit of volatility. If you would invest  1,181  in Pacific Funds Portfolio on September 3, 2024 and sell it today you would earn a total of  63.00  from holding Pacific Funds Portfolio or generate 5.33% 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 Fund  vs.  Pacific Funds Portfolio

American Balanced

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Balanced Fund are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong 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.

Pacific Funds Portfolio

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pacific Funds Portfolio are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Pacific Funds 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 Pacific Funds

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

The idea behind American Balanced Fund and Pacific Funds Portfolio 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.