Correlation Between Cref Inflation-linked and American Beacon

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

By analyzing existing cross correlation between Cref Inflation Linked Bond and American Beacon International, you can compare the effects of market volatilities on Cref Inflation-linked 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 Cref Inflation-linked with a short position of American Beacon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cref Inflation-linked and American Beacon.

Diversification Opportunities for Cref Inflation-linked and American Beacon

0.8

Correlation Coefficient

Cref Inflation-linked  American Beacon

Very poor diversification

The 3 months correlation between CREF and American is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Cref Inflation Linked Bond and American Beacon International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Inte and Cref Inflation-linked 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 Cref Inflation Linked Bond 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 Inte has no effect on the direction of Cref Inflation-linked i.e., Cref Inflation-linked and American Beacon go up and down completely randomly.

Pair Corralation between Cref Inflation-linked and American Beacon

Assuming the 90 days trading horizon Cref Inflation Linked Bond is expected to generate 0.2 times more return on investment than American Beacon. However, Cref Inflation Linked Bond is 4.94 times less risky than American Beacon. It trades about 0.2 of its potential returns per unit of risk. American Beacon International is currently generating about -0.09 per unit of risk. If you would invest  8,496  in Cref Inflation Linked Bond on September 4, 2024 and sell it today you would earn a total of  59.00  from holding Cref Inflation Linked Bond or generate 0.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.24%
Values	Daily Returns

Cref Inflation Linked Bond  vs.  American Beacon International

Cref Inflation Linked

Risk-Adjusted Performance

0 of 100

Very Weak

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

American Beacon Inte

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Beacon International 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 Cref Inflation-linked and American Beacon

The main advantage of trading using opposite Cref Inflation-linked and American Beacon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cref Inflation-linked 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 Cref Inflation Linked Bond and American Beacon International 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.