Correlation Between Amcap Fund and State Farm

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

By analyzing existing cross correlation between Amcap Fund Class and State Farm Interim, you can compare the effects of market volatilities on Amcap Fund and State Farm 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 Amcap Fund with a short position of State Farm. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amcap Fund and State Farm.

Diversification Opportunities for Amcap Fund and State Farm

-0.16

Correlation Coefficient

Amcap Fund  State Farm

Good diversification

The 3 months correlation between Amcap and State is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Amcap Fund Class and State Farm Interim in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Farm Interim and Amcap Fund 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 Amcap Fund Class are associated (or correlated) with State Farm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Farm Interim has no effect on the direction of Amcap Fund i.e., Amcap Fund and State Farm go up and down completely randomly.

Pair Corralation between Amcap Fund and State Farm

Assuming the 90 days horizon Amcap Fund Class is expected to generate 6.15 times more return on investment than State Farm. However, Amcap Fund is 6.15 times more volatile than State Farm Interim. It trades about 0.06 of its potential returns per unit of risk. State Farm Interim is currently generating about 0.07 per unit of risk. If you would invest  4,101  in Amcap Fund Class on October 7, 2024 and sell it today you would earn a total of  288.00  from holding Amcap Fund Class or generate 7.02% return on investment over 90 days.

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

Amcap Fund Class  vs.  State Farm Interim

Amcap Fund Class

Risk-Adjusted Performance

6 of 100

Modest

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

State Farm Interim

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days State Farm Interim has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, State Farm is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Amcap Fund and State Farm

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

The idea behind Amcap Fund Class and State Farm Interim 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.