Correlation Between Praxis Growth and American Funds

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

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

Diversification Opportunities for Praxis Growth and American Funds

0.62

Correlation Coefficient

Praxis Growth  American Funds

Poor diversification

The 3 months correlation between Praxis and American is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Praxis Growth Index and American Funds Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Balanced and Praxis Growth 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 Praxis Growth Index 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 Balanced has no effect on the direction of Praxis Growth i.e., Praxis Growth and American Funds go up and down completely randomly.

Pair Corralation between Praxis Growth and American Funds

Assuming the 90 days horizon Praxis Growth Index is expected to generate 1.8 times more return on investment than American Funds. However, Praxis Growth is 1.8 times more volatile than American Funds Balanced. It trades about 0.16 of its potential returns per unit of risk. American Funds Balanced is currently generating about -0.03 per unit of risk. If you would invest  4,705  in Praxis Growth Index on September 19, 2024 and sell it today you would earn a total of  411.00  from holding Praxis Growth Index or generate 8.74% return on investment over 90 days.

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

Praxis Growth Index  vs.  American Funds Balanced

Praxis Growth Index

Risk-Adjusted Performance

12 of 100

Good

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

American Funds Balanced

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days American Funds Balanced has generated negative risk-adjusted returns adding no value to fund investors. 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.

Pair Trading with Praxis Growth and American Funds

The main advantage of trading using opposite Praxis Growth and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Praxis Growth 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 Praxis Growth Index and American Funds Balanced 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 Global Correlations module to find global opportunities by holding instruments from different markets.