Correlation Between American Balanced and Scharf Global

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

Diversification Opportunities for American Balanced and Scharf Global

0.51

Correlation Coefficient

American Balanced  Scharf Global

Very weak diversification

The 3 months correlation between American and Scharf is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced Fund and Scharf Global Opportunity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scharf Global Opportunity 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 Scharf Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scharf Global Opportunity has no effect on the direction of American Balanced i.e., American Balanced and Scharf Global go up and down completely randomly.

Pair Corralation between American Balanced and Scharf Global

Assuming the 90 days horizon American Balanced Fund is expected to under-perform the Scharf Global. But the mutual fund apears to be less risky and, when comparing its historical volatility, American Balanced Fund is 1.17 times less risky than Scharf Global. The mutual fund trades about -0.02 of its potential returns per unit of risk. The Scharf Global Opportunity is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3,496  in Scharf Global Opportunity on December 30, 2024 and sell it today you would earn a total of  162.00  from holding Scharf Global Opportunity or generate 4.63% return on investment over 90 days.

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

American Balanced Fund  vs.  Scharf Global Opportunity

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.

Scharf Global Opportunity

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Scharf Global Opportunity are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Scharf Global 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 Scharf Global

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

The idea behind American Balanced Fund and Scharf Global Opportunity 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.