Correlation Between American Beacon and Jennison Natural

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

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

Diversification Opportunities for American Beacon and Jennison Natural

0.54

Correlation Coefficient

American Beacon  Jennison Natural

Very weak diversification

The 3 months correlation between American and Jennison is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding American Beacon Small and Jennison Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jennison Natural Res and American Beacon 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 Beacon Small are associated (or correlated) with Jennison Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jennison Natural Res has no effect on the direction of American Beacon i.e., American Beacon and Jennison Natural go up and down completely randomly.

Pair Corralation between American Beacon and Jennison Natural

Assuming the 90 days horizon American Beacon Small is expected to generate 0.95 times more return on investment than Jennison Natural. However, American Beacon Small is 1.05 times less risky than Jennison Natural. It trades about 0.03 of its potential returns per unit of risk. Jennison Natural Resources is currently generating about 0.01 per unit of risk. If you would invest  2,214  in American Beacon Small on October 24, 2024 and sell it today you would earn a total of  359.00  from holding American Beacon Small or generate 16.21% return on investment over 90 days.

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

American Beacon Small  vs.  Jennison Natural Resources

American Beacon Small

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Beacon Small are ranked lower than 4 (%) 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.

Jennison Natural Res

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Jennison Natural Resources are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Jennison Natural is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with American Beacon and Jennison Natural

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

The idea behind American Beacon Small and Jennison Natural Resources 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.