Correlation Between Growth and American Funds

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

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

Diversification Opportunities for Growth and American Funds

0.68

Correlation Coefficient

Growth  American Funds

Poor diversification

The 3 months correlation between Growth and American is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Growth And Tax and American Funds Tax Advantaged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Tax and Growth 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 Growth And Tax 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 Tax has no effect on the direction of Growth i.e., Growth and American Funds go up and down completely randomly.

Pair Corralation between Growth and American Funds

Assuming the 90 days horizon Growth And Tax is expected to generate 1.24 times more return on investment than American Funds. However, Growth is 1.24 times more volatile than American Funds Tax Advantaged. It trades about 0.16 of its potential returns per unit of risk. American Funds Tax Advantaged is currently generating about 0.06 per unit of risk. If you would invest  2,751  in Growth And Tax on September 15, 2024 and sell it today you would earn a total of  102.00  from holding Growth And Tax or generate 3.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Growth And Tax  vs.  American Funds Tax Advantaged

Growth And Tax

Risk-Adjusted Performance

12 of 100

Good

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

American Funds Tax

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds Tax Advantaged are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and 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.

Pair Trading with Growth and American Funds

The main advantage of trading using opposite Growth and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Growth 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 Growth And Tax and American Funds Tax Advantaged 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.