Correlation Between Ultra Small and American Beacon

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

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

Diversification Opportunities for Ultra Small and American Beacon

-0.03

Correlation Coefficient

Ultra Small  American Beacon

Good diversification

The 3 months correlation between Ultra and American is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Small Pany Market and American Beacon Bridgeway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Bridgeway and Ultra Small 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 Ultra Small Pany Market are associated (or correlated) with American Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Beacon Bridgeway has no effect on the direction of Ultra Small i.e., Ultra Small and American Beacon go up and down completely randomly.

Pair Corralation between Ultra Small and American Beacon

Assuming the 90 days horizon Ultra Small Pany Market is expected to generate 0.51 times more return on investment than American Beacon. However, Ultra Small Pany Market is 1.97 times less risky than American Beacon. It trades about 0.02 of its potential returns per unit of risk. American Beacon Bridgeway is currently generating about -0.32 per unit of risk. If you would invest  1,331  in Ultra Small Pany Market on October 7, 2024 and sell it today you would earn a total of  4.00  from holding Ultra Small Pany Market or generate 0.3% return on investment over 90 days.

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

Ultra Small Pany Market  vs.  American Beacon Bridgeway

Ultra Small Pany

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Small Pany Market are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Ultra Small showed solid returns over the last few months and may actually be approaching a breakup point.

American Beacon Bridgeway

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Beacon Bridgeway has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Ultra Small and American Beacon

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

The idea behind Ultra Small Pany Market and American Beacon Bridgeway 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.