Correlation Between Income Fund and American Mutual

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

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

Diversification Opportunities for Income Fund and American Mutual

0.84

Correlation Coefficient

Income Fund  American Mutual

Very poor diversification

The 3 months correlation between Income and American is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Income Fund Of and American Mutual Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Mutual and Income 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 Income Fund Of are associated (or correlated) with American Mutual. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Mutual has no effect on the direction of Income Fund i.e., Income Fund and American Mutual go up and down completely randomly.

Pair Corralation between Income Fund and American Mutual

Assuming the 90 days horizon Income Fund Of is expected to under-perform the American Mutual. But the mutual fund apears to be less risky and, when comparing its historical volatility, Income Fund Of is 1.2 times less risky than American Mutual. The mutual fund trades about -0.14 of its potential returns per unit of risk. The American Mutual Fund is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  5,864  in American Mutual Fund on September 19, 2024 and sell it today you would lose (260.00) from holding American Mutual Fund or give up 4.43% of portfolio value over 90 days.

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

Income Fund Of  vs.  American Mutual Fund

Income Fund

Risk-Adjusted Performance

0 of 100

Very Weak

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

American Mutual

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Income Fund and American Mutual

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

The idea behind Income Fund Of and American Mutual Fund 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.