Correlation Between Palm Valley and American Beacon

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

By analyzing existing cross correlation between Palm Valley Capital and American Beacon Garcia, you can compare the effects of market volatilities on Palm Valley and American Beacon 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 Palm Valley with a short position of American Beacon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Palm Valley and American Beacon.

Diversification Opportunities for Palm Valley and American Beacon

-0.4

Correlation Coefficient

Palm Valley  American Beacon

Very good diversification

The 3 months correlation between Palm and American is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Palm Valley Capital and American Beacon Garcia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Garcia and Palm Valley 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 Palm Valley Capital are associated (or correlated) with American Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Beacon Garcia has no effect on the direction of Palm Valley i.e., Palm Valley and American Beacon go up and down completely randomly.

Pair Corralation between Palm Valley and American Beacon

Assuming the 90 days horizon Palm Valley is expected to generate 1.33 times less return on investment than American Beacon. But when comparing it to its historical volatility, Palm Valley Capital is 2.48 times less risky than American Beacon. It trades about 0.09 of its potential returns per unit of risk. American Beacon Garcia is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  798.00  in American Beacon Garcia on September 12, 2024 and sell it today you would earn a total of  67.00  from holding American Beacon Garcia or generate 8.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.7%
Values	Daily Returns

Palm Valley Capital  vs.  American Beacon Garcia

Palm Valley Capital

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Palm Valley Capital are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Palm Valley is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Beacon Garcia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Beacon Garcia has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, American Beacon is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Palm Valley and American Beacon

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

The idea behind Palm Valley Capital and American Beacon Garcia 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.