Correlation Between American Balanced and Hcm Income

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

Diversification Opportunities for American Balanced and Hcm Income

0.88

Correlation Coefficient

American Balanced  Hcm Income

Very poor diversification

The 3 months correlation between American and Hcm is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced Fund and Hcm Income Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hcm Income Plus 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 Hcm Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hcm Income Plus has no effect on the direction of American Balanced i.e., American Balanced and Hcm Income go up and down completely randomly.

Pair Corralation between American Balanced and Hcm Income

Assuming the 90 days horizon American Balanced is expected to generate 2.32 times less return on investment than Hcm Income. But when comparing it to its historical volatility, American Balanced Fund is 2.04 times less risky than Hcm Income. It trades about 0.16 of its potential returns per unit of risk. Hcm Income Plus is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,682  in Hcm Income Plus on September 4, 2024 and sell it today you would earn a total of  188.00  from holding Hcm Income Plus or generate 11.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

American Balanced Fund  vs.  Hcm Income Plus

American Balanced

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Balanced Fund are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. 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.

Hcm Income Plus

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hcm Income Plus are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Hcm Income may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with American Balanced and Hcm Income

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

The idea behind American Balanced Fund and Hcm Income Plus 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.