Correlation Between Enhanced Fixed and American Funds

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

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

Diversification Opportunities for Enhanced Fixed and American Funds

-0.03

Correlation Coefficient

Enhanced Fixed  American Funds

Good diversification

The 3 months correlation between Enhanced and American is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Enhanced Fixed Income and American Funds Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Growth and Enhanced Fixed 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 Enhanced Fixed Income 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 Growth has no effect on the direction of Enhanced Fixed i.e., Enhanced Fixed and American Funds go up and down completely randomly.

Pair Corralation between Enhanced Fixed and American Funds

Assuming the 90 days horizon Enhanced Fixed Income is expected to generate 0.22 times more return on investment than American Funds. However, Enhanced Fixed Income is 4.58 times less risky than American Funds. It trades about 0.13 of its potential returns per unit of risk. American Funds Growth is currently generating about -0.11 per unit of risk. If you would invest  992.00  in Enhanced Fixed Income on December 22, 2024 and sell it today you would earn a total of  22.00  from holding Enhanced Fixed Income or generate 2.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Enhanced Fixed Income  vs.  American Funds Growth

Enhanced Fixed Income

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Enhanced Fixed Income are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Enhanced Fixed is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Funds Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Funds Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental 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 Enhanced Fixed and American Funds

The main advantage of trading using opposite Enhanced Fixed and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Enhanced Fixed 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 Enhanced Fixed Income and American Funds Growth 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.