Correlation Between American Balanced and Value Line

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

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

Diversification Opportunities for American Balanced and Value Line

0.83

Correlation Coefficient

American Balanced  Value Line

Very poor diversification

The 3 months correlation between American and Value is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced Fund and Value Line Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Line Income and American Balanced 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 Balanced Fund are associated (or correlated) with Value Line. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Value Line Income has no effect on the direction of American Balanced i.e., American Balanced and Value Line go up and down completely randomly.

Pair Corralation between American Balanced and Value Line

Assuming the 90 days horizon American Balanced is expected to generate 2.8 times less return on investment than Value Line. But when comparing it to its historical volatility, American Balanced Fund is 1.68 times less risky than Value Line. It trades about 0.16 of its potential returns per unit of risk. Value Line Income is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  1,146  in Value Line Income on September 2, 2024 and sell it today you would earn a total of  162.00  from holding Value Line Income or generate 14.14% return on investment over 90 days.

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

American Balanced Fund  vs.  Value Line Income

American Balanced

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Balanced Fund are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, American Balanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Value Line Income

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Value Line Income are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Value Line showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Balanced and Value Line

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

The idea behind American Balanced Fund and Value Line Income 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 Stocks Directory module to find actively traded stocks across global markets.