Correlation Between American Funds and Baird Ultra

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

By analyzing existing cross correlation between American Funds Inflation and Baird Ultra Short, you can compare the effects of market volatilities on American Funds and Baird Ultra 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 Funds with a short position of Baird Ultra. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Baird Ultra.

Diversification Opportunities for American Funds and Baird Ultra

0.78

Correlation Coefficient

American Funds  Baird Ultra

Poor diversification

The 3 months correlation between American and Baird is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Inflation and Baird Ultra Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baird Ultra Short and American Funds 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 Funds Inflation are associated (or correlated) with Baird Ultra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baird Ultra Short has no effect on the direction of American Funds i.e., American Funds and Baird Ultra go up and down completely randomly.

Pair Corralation between American Funds and Baird Ultra

Assuming the 90 days horizon American Funds Inflation is expected to generate 4.69 times more return on investment than Baird Ultra. However, American Funds is 4.69 times more volatile than Baird Ultra Short. It trades about 0.18 of its potential returns per unit of risk. Baird Ultra Short is currently generating about 0.22 per unit of risk. If you would invest  914.00  in American Funds Inflation on December 28, 2024 and sell it today you would earn a total of  28.00  from holding American Funds Inflation or generate 3.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

American Funds Inflation  vs.  Baird Ultra Short

American Funds Inflation

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds Inflation are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Baird Ultra Short

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Baird Ultra Short are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Baird Ultra 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 Funds and Baird Ultra

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

The idea behind American Funds Inflation and Baird Ultra Short 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.