Correlation Between Moderately Aggressive and American Funds

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

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

Diversification Opportunities for Moderately Aggressive and American Funds

0.47

Correlation Coefficient

Moderately Aggressive  American Funds

Very weak diversification

The 3 months correlation between Moderately and American is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Moderately Aggressive Balanced and American Funds Retirement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Retirement and Moderately Aggressive 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 Moderately Aggressive Balanced are associated (or correlated) with American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Retirement has no effect on the direction of Moderately Aggressive i.e., Moderately Aggressive and American Funds go up and down completely randomly.

Pair Corralation between Moderately Aggressive and American Funds

Assuming the 90 days horizon Moderately Aggressive Balanced is expected to generate 1.78 times more return on investment than American Funds. However, Moderately Aggressive is 1.78 times more volatile than American Funds Retirement. It trades about 0.22 of its potential returns per unit of risk. American Funds Retirement is currently generating about 0.09 per unit of risk. If you would invest  1,209  in Moderately Aggressive Balanced on August 31, 2024 and sell it today you would earn a total of  38.00  from holding Moderately Aggressive Balanced or generate 3.14% return on investment over 90 days.

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

Moderately Aggressive Balanced  vs.  American Funds Retirement

Moderately Aggressive

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Moderately Aggressive Balanced are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Moderately Aggressive may actually be approaching a critical reversion point that can send shares even higher in December 2024.

American Funds Retirement

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds Retirement are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Moderately Aggressive and American Funds

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

The idea behind Moderately Aggressive Balanced and American Funds Retirement 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.