Correlation Between American Balanced and Delaware Wealth

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

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

Diversification Opportunities for American Balanced and Delaware Wealth

0.99

Correlation Coefficient

American Balanced  Delaware Wealth

No risk reduction

The 3 months correlation between American and Delaware is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced Fund and Delaware Wealth Builder in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Delaware Wealth Builder and American Balanced 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 Balanced Fund are associated (or correlated) with Delaware Wealth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Delaware Wealth Builder has no effect on the direction of American Balanced i.e., American Balanced and Delaware Wealth go up and down completely randomly.

Pair Corralation between American Balanced and Delaware Wealth

Assuming the 90 days horizon American Balanced is expected to generate 1.04 times less return on investment than Delaware Wealth. In addition to that, American Balanced is 1.05 times more volatile than Delaware Wealth Builder. It trades about 0.06 of its total potential returns per unit of risk. Delaware Wealth Builder is currently generating about 0.07 per unit of volatility. If you would invest  1,254  in Delaware Wealth Builder on October 4, 2024 and sell it today you would earn a total of  221.00  from holding Delaware Wealth Builder or generate 17.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	93.54%
Values	Daily Returns

American Balanced Fund  vs.  Delaware Wealth Builder

American Balanced

Risk-Adjusted Performance

0 of 100

Very Weak

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

Delaware Wealth Builder

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Delaware Wealth Builder has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Delaware Wealth 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 Balanced and Delaware Wealth

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

The idea behind American Balanced Fund and Delaware Wealth Builder 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.