Correlation Between American Funds and Perkins Mid

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

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

Diversification Opportunities for American Funds and Perkins Mid

0.43

Correlation Coefficient

American Funds  Perkins Mid

Very weak diversification

The 3 months correlation between American and Perkins is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Fundamental and Perkins Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Perkins Mid Cap 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 Fundamental are associated (or correlated) with Perkins Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Perkins Mid Cap has no effect on the direction of American Funds i.e., American Funds and Perkins Mid go up and down completely randomly.

Pair Corralation between American Funds and Perkins Mid

Assuming the 90 days horizon American Funds Fundamental is expected to generate 1.02 times more return on investment than Perkins Mid. However, American Funds is 1.02 times more volatile than Perkins Mid Cap. It trades about -0.04 of its potential returns per unit of risk. Perkins Mid Cap is currently generating about -0.11 per unit of risk. If you would invest  8,504  in American Funds Fundamental on September 24, 2024 and sell it today you would lose (338.00) from holding American Funds Fundamental or give up 3.97% of portfolio value over 90 days.

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

American Funds Fundamental  vs.  Perkins Mid Cap

American Funds Funda

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Funds Fundamental has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong 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.

Perkins Mid Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Perkins Mid Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with American Funds and Perkins Mid

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

The idea behind American Funds Fundamental and Perkins Mid Cap 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.