Correlation Between American Funds and Domini Sustainable

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

By analyzing existing cross correlation between American Funds Smallcap and Domini Sustainable Solutions, you can compare the effects of market volatilities on American Funds and Domini Sustainable 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 Domini Sustainable. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Domini Sustainable.

Diversification Opportunities for American Funds and Domini Sustainable

0.81

Correlation Coefficient

American Funds  Domini Sustainable

Very poor diversification

The 3 months correlation between American and Domini is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Smallcap and Domini Sustainable Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Domini Sustainable 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 Smallcap are associated (or correlated) with Domini Sustainable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Domini Sustainable has no effect on the direction of American Funds i.e., American Funds and Domini Sustainable go up and down completely randomly.

Pair Corralation between American Funds and Domini Sustainable

Assuming the 90 days horizon American Funds Smallcap is expected to generate 0.97 times more return on investment than Domini Sustainable. However, American Funds Smallcap is 1.03 times less risky than Domini Sustainable. It trades about 0.12 of its potential returns per unit of risk. Domini Sustainable Solutions is currently generating about 0.07 per unit of risk. If you would invest  6,807  in American Funds Smallcap on September 4, 2024 and sell it today you would earn a total of  407.00  from holding American Funds Smallcap or generate 5.98% return on investment over 90 days.

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

American Funds Smallcap  vs.  Domini Sustainable Solutions

American Funds Smallcap

Risk-Adjusted Performance

9 of 100

OK

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

Domini Sustainable

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Domini Sustainable Solutions are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Domini Sustainable 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 Funds and Domini Sustainable

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

The idea behind American Funds Smallcap and Domini Sustainable Solutions 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.