Correlation Between World Energy and American Fds

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

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

Diversification Opportunities for World Energy and American Fds

0.6

Correlation Coefficient

World Energy  American Fds

Poor diversification

The 3 months correlation between World and American is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding World Energy Fund and American Fds Smallcap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Fds Smallcap and World Energy 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 World Energy Fund are associated (or correlated) with American Fds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Fds Smallcap has no effect on the direction of World Energy i.e., World Energy and American Fds go up and down completely randomly.

Pair Corralation between World Energy and American Fds

Assuming the 90 days horizon World Energy Fund is expected to generate 1.52 times more return on investment than American Fds. However, World Energy is 1.52 times more volatile than American Fds Smallcap. It trades about 0.31 of its potential returns per unit of risk. American Fds Smallcap is currently generating about 0.24 per unit of risk. If you would invest  1,405  in World Energy Fund on September 5, 2024 and sell it today you would earn a total of  123.00  from holding World Energy Fund or generate 8.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

World Energy Fund  vs.  American Fds Smallcap

World Energy

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in World Energy Fund are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, World Energy showed solid returns over the last few months and may actually be approaching a breakup point.

American Fds Smallcap

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Fds Smallcap are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, American Fds may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with World Energy and American Fds

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

The idea behind World Energy Fund and American Fds Smallcap 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.

Check out your portfolio center.

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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.