Correlation Between American Funds and Multi Index

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

By analyzing existing cross correlation between American Funds 2015 and Multi Index 2015 Lifetime, you can compare the effects of market volatilities on American Funds and Multi Index 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 Multi Index. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Multi Index.

Diversification Opportunities for American Funds and Multi Index

0.86

Correlation Coefficient

American Funds  Multi Index

Very poor diversification

The 3 months correlation between American and Multi is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding American Funds 2015 and Multi Index 2015 Lifetime in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Multi Index 2015 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 2015 are associated (or correlated) with Multi Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Multi Index 2015 has no effect on the direction of American Funds i.e., American Funds and Multi Index go up and down completely randomly.

Pair Corralation between American Funds and Multi Index

Assuming the 90 days horizon American Funds 2015 is expected to under-perform the Multi Index. In addition to that, American Funds is 1.27 times more volatile than Multi Index 2015 Lifetime. It trades about -0.08 of its total potential returns per unit of risk. Multi Index 2015 Lifetime is currently generating about 0.0 per unit of volatility. If you would invest  1,034  in Multi Index 2015 Lifetime on October 23, 2024 and sell it today you would earn a total of  0.00  from holding Multi Index 2015 Lifetime or generate 0.0% return on investment over 90 days.

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

American Funds 2015  vs.  Multi Index 2015 Lifetime

American Funds 2015

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Funds 2015 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Multi Index 2015

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Multi Index 2015 Lifetime has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward-looking signals, Multi Index 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 Multi Index

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

The idea behind American Funds 2015 and Multi Index 2015 Lifetime 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.