Correlation Between Clearbridge Small and American Funds

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

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

Diversification Opportunities for Clearbridge Small and American Funds

-0.53

Correlation Coefficient

Clearbridge Small  American Funds

Excellent diversification

The 3 months correlation between Clearbridge and American is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Clearbridge Small Cap and American Funds Inflation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Inflation and Clearbridge Small 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 Clearbridge Small Cap are associated (or correlated) with American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Inflation has no effect on the direction of Clearbridge Small i.e., Clearbridge Small and American Funds go up and down completely randomly.

Pair Corralation between Clearbridge Small and American Funds

Assuming the 90 days horizon Clearbridge Small Cap is expected to generate 4.43 times more return on investment than American Funds. However, Clearbridge Small is 4.43 times more volatile than American Funds Inflation. It trades about 0.16 of its potential returns per unit of risk. American Funds Inflation is currently generating about -0.06 per unit of risk. If you would invest  4,034  in Clearbridge Small Cap on September 13, 2024 and sell it today you would earn a total of  472.00  from holding Clearbridge Small Cap or generate 11.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Clearbridge Small Cap  vs.  American Funds Inflation

Clearbridge Small Cap

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Clearbridge Small Cap are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Clearbridge Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

American Funds Inflation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Funds Inflation has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, American 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 Clearbridge Small and American Funds

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

The idea behind Clearbridge Small Cap and American Funds Inflation 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.

Check out your portfolio center.

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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.