Correlation Between American Beacon and Provident Trust
Can any of the company-specific risk be diversified away by investing in both American Beacon and Provident Trust 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 Beacon and Provident Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Beacon Bridgeway and Provident Trust Strategy, you can compare the effects of market volatilities on American Beacon and Provident Trust 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 Beacon with a short position of Provident Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Beacon and Provident Trust.
Diversification Opportunities for American Beacon and Provident Trust
0.51 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between American and Provident is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding American Beacon Bridgeway and Provident Trust Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Provident Trust Strategy and American Beacon 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 Beacon Bridgeway are associated (or correlated) with Provident Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Provident Trust Strategy has no effect on the direction of American Beacon i.e., American Beacon and Provident Trust go up and down completely randomly.
Pair Corralation between American Beacon and Provident Trust
Assuming the 90 days horizon American Beacon is expected to generate 2.32 times less return on investment than Provident Trust. In addition to that, American Beacon is 1.3 times more volatile than Provident Trust Strategy. It trades about 0.02 of its total potential returns per unit of risk. Provident Trust Strategy is currently generating about 0.07 per unit of volatility. If you would invest 1,537 in Provident Trust Strategy on September 25, 2024 and sell it today you would earn a total of 446.00 from holding Provident Trust Strategy or generate 29.02% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
American Beacon Bridgeway vs. Provident Trust Strategy
Performance |
Timeline |
American Beacon Bridgeway |
Provident Trust Strategy |
American Beacon and Provident Trust Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with American Beacon and Provident Trust
The main advantage of trading using opposite American Beacon and Provident Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Beacon position performs unexpectedly, Provident Trust 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 Provident Trust will offset losses from the drop in Provident Trust's long position.American Beacon vs. American Beacon Bridgeway | American Beacon vs. Small Cap Value Fund | American Beacon vs. Ultra Small Pany Market | American Beacon vs. Ultra Small Pany Fund |
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Check out your portfolio center.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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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