Correlation Between American Balanced and Wesmark Balanced

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

Diversification Opportunities for American Balanced and Wesmark Balanced

0.75

Correlation Coefficient

American Balanced  Wesmark Balanced

Poor diversification

The 3 months correlation between American and Wesmark is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced Fund and Wesmark Balanced Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wesmark Balanced 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 Wesmark Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wesmark Balanced has no effect on the direction of American Balanced i.e., American Balanced and Wesmark Balanced go up and down completely randomly.

Pair Corralation between American Balanced and Wesmark Balanced

Assuming the 90 days horizon American Balanced Fund is expected to generate 1.11 times more return on investment than Wesmark Balanced. However, American Balanced is 1.11 times more volatile than Wesmark Balanced Fund. It trades about 0.11 of its potential returns per unit of risk. Wesmark Balanced Fund is currently generating about 0.06 per unit of risk. If you would invest  2,796  in American Balanced Fund on September 14, 2024 and sell it today you would earn a total of  878.00  from holding American Balanced Fund or generate 31.4% return on investment over 90 days.

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

American Balanced Fund  vs.  Wesmark Balanced Fund

American Balanced

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Balanced Fund are ranked lower than 9 (%) 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.

Wesmark Balanced

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Wesmark Balanced Fund are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, Wesmark Balanced 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 Wesmark Balanced

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

The idea behind American Balanced Fund and Wesmark Balanced Fund 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..