Correlation Between American Beacon and Horizon Active

Can any of the company-specific risk be diversified away by investing in both American Beacon and Horizon Active 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 Horizon Active 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 Horizon Active Risk, you can compare the effects of market volatilities on American Beacon and Horizon Active 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 Horizon Active. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Beacon and Horizon Active.

Diversification Opportunities for American Beacon and Horizon Active

0.75

Correlation Coefficient

American Beacon  Horizon Active

Poor diversification

The 3 months correlation between American and Horizon is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding American Beacon Small and Horizon Active Risk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Horizon Active Risk 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 Horizon Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Horizon Active Risk has no effect on the direction of American Beacon i.e., American Beacon and Horizon Active go up and down completely randomly.

Pair Corralation between American Beacon and Horizon Active

Assuming the 90 days horizon American Beacon Small is expected to generate 2.02 times more return on investment than Horizon Active. However, American Beacon is 2.02 times more volatile than Horizon Active Risk. It trades about 0.11 of its potential returns per unit of risk. Horizon Active Risk is currently generating about 0.08 per unit of risk. If you would invest  2,209  in American Beacon Small on September 14, 2024 and sell it today you would earn a total of  176.00  from holding American Beacon Small or generate 7.97% return on investment over 90 days.

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

American Beacon Small  vs.  Horizon Active Risk

American Beacon Small

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Beacon Small are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, American Beacon may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Horizon Active Risk

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Horizon Active Risk are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Horizon Active 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 Horizon Active

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

The idea behind American Beacon Small and Horizon Active Risk 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.