Correlation Between Ridgeworth Innovative and American Beacon

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

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

Diversification Opportunities for Ridgeworth Innovative and American Beacon

0.82

Correlation Coefficient

Ridgeworth Innovative  American Beacon

Very poor diversification

The 3 months correlation between Ridgeworth and American is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Ridgeworth Innovative Growth and American Beacon Sga in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Sga and Ridgeworth Innovative 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 Ridgeworth Innovative Growth 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 Sga has no effect on the direction of Ridgeworth Innovative i.e., Ridgeworth Innovative and American Beacon go up and down completely randomly.

Pair Corralation between Ridgeworth Innovative and American Beacon

Assuming the 90 days horizon Ridgeworth Innovative Growth is expected to generate 1.62 times more return on investment than American Beacon. However, Ridgeworth Innovative is 1.62 times more volatile than American Beacon Sga. It trades about 0.28 of its potential returns per unit of risk. American Beacon Sga is currently generating about 0.1 per unit of risk. If you would invest  4,708  in Ridgeworth Innovative Growth on September 13, 2024 and sell it today you would earn a total of  1,074  from holding Ridgeworth Innovative Growth or generate 22.81% return on investment over 90 days.

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

Ridgeworth Innovative Growth  vs.  American Beacon Sga

Ridgeworth Innovative

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ridgeworth Innovative Growth are ranked lower than 22 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Ridgeworth Innovative showed solid returns over the last few months and may actually be approaching a breakup point.

American Beacon Sga

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Beacon Sga are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. 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 Ridgeworth Innovative and American Beacon

The main advantage of trading using opposite Ridgeworth Innovative and American Beacon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ridgeworth Innovative 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 Ridgeworth Innovative Growth and American Beacon Sga 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.