Correlation Between American Funds and Long Term

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

By analyzing existing cross correlation between American Funds New and The Long Term, you can compare the effects of market volatilities on American Funds and Long Term 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 Funds with a short position of Long Term. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Long Term.

Diversification Opportunities for American Funds and Long Term

0.61

Correlation Coefficient

American Funds  Long Term

Poor diversification

The 3 months correlation between American and Long is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding American Funds New and The Long Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Long Term and American Funds 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 Funds New are associated (or correlated) with Long Term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Long Term has no effect on the direction of American Funds i.e., American Funds and Long Term go up and down completely randomly.

Pair Corralation between American Funds and Long Term

Assuming the 90 days horizon American Funds is expected to generate 3.17 times less return on investment than Long Term. But when comparing it to its historical volatility, American Funds New is 2.18 times less risky than Long Term. It trades about 0.13 of its potential returns per unit of risk. The Long Term is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2,960  in The Long Term on September 12, 2024 and sell it today you would earn a total of  521.00  from holding The Long Term or generate 17.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

American Funds New  vs.  The Long Term

American Funds New

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds New are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Long Term

Risk-Adjusted Performance

14 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Long Term are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking signals, Long Term showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Funds and Long Term

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

The idea behind American Funds New and The Long Term 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.