Correlation Between American Funds and Knife River

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

By analyzing existing cross correlation between American Funds 2050 and Knife River, you can compare the effects of market volatilities on American Funds and Knife River 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 Funds with a short position of Knife River. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Knife River.

Diversification Opportunities for American Funds and Knife River

0.39

Correlation Coefficient

American Funds  Knife River

Weak diversification

The 3 months correlation between American and Knife is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding American Funds 2050 and Knife River in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knife River and American Funds 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 Funds 2050 are associated (or correlated) with Knife River. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Knife River has no effect on the direction of American Funds i.e., American Funds and Knife River go up and down completely randomly.

Pair Corralation between American Funds and Knife River

Assuming the 90 days horizon American Funds 2050 is expected to generate 0.26 times more return on investment than Knife River. However, American Funds 2050 is 3.92 times less risky than Knife River. It trades about 0.06 of its potential returns per unit of risk. Knife River is currently generating about -0.03 per unit of risk. If you would invest  2,075  in American Funds 2050 on December 3, 2024 and sell it today you would earn a total of  34.00  from holding American Funds 2050 or generate 1.64% return on investment over 90 days.

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

American Funds 2050  vs.  Knife River

American Funds 2050

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Funds 2050 has generated negative risk-adjusted returns adding no value to fund investors. 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.

Knife River

Risk-Adjusted Performance

Very Weak

Over the last 90 days Knife River has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Knife River is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with American Funds and Knife River

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

The idea behind American Funds 2050 and Knife River 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 Global Correlations module to find global opportunities by holding instruments from different markets.