Correlation Between American Balanced and Growth

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

Diversification Opportunities for American Balanced and Growth

0.93

Correlation Coefficient

American Balanced  Growth

Almost no diversification

The 3 months correlation between American and Growth is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced Fund and Growth And Tax in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth And Tax 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 Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth And Tax has no effect on the direction of American Balanced i.e., American Balanced and Growth go up and down completely randomly.

Pair Corralation between American Balanced and Growth

Assuming the 90 days horizon American Balanced Fund is expected to generate 1.33 times more return on investment than Growth. However, American Balanced is 1.33 times more volatile than Growth And Tax. It trades about 0.13 of its potential returns per unit of risk. Growth And Tax is currently generating about 0.16 per unit of risk. If you would invest  3,128  in American Balanced Fund on September 15, 2024 and sell it today you would earn a total of  587.00  from holding American Balanced Fund or generate 18.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.6%
Values	Daily Returns

American Balanced Fund  vs.  Growth And Tax

American Balanced

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Balanced Fund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and 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.

Growth And Tax

Risk-Adjusted Performance

12 of 100

Good

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

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

The idea behind American Balanced Fund and Growth And Tax 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..