Correlation Between American Balanced and Mondrian Emerging

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

Diversification Opportunities for American Balanced and Mondrian Emerging

0.08

Correlation Coefficient

American Balanced  Mondrian Emerging

Significant diversification

The 3 months correlation between American and Mondrian is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced Fund and Mondrian Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mondrian Emerging Markets 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 Mondrian Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mondrian Emerging Markets has no effect on the direction of American Balanced i.e., American Balanced and Mondrian Emerging go up and down completely randomly.

Pair Corralation between American Balanced and Mondrian Emerging

Assuming the 90 days horizon American Balanced Fund is expected to under-perform the Mondrian Emerging. But the mutual fund apears to be less risky and, when comparing its historical volatility, American Balanced Fund is 1.38 times less risky than Mondrian Emerging. The mutual fund trades about -0.02 of its potential returns per unit of risk. The Mondrian Emerging Markets is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  738.00  in Mondrian Emerging Markets on December 30, 2024 and sell it today you would earn a total of  45.00  from holding Mondrian Emerging Markets or generate 6.1% return on investment over 90 days.

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

American Balanced Fund  vs.  Mondrian Emerging Markets

American Balanced

Risk-Adjusted Performance

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.

Mondrian Emerging Markets

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mondrian Emerging Markets are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Mondrian Emerging 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 Mondrian Emerging

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

The idea behind American Balanced Fund and Mondrian Emerging Markets 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.