Correlation Between American Funds and Avantis Large

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

Diversification Opportunities for American Funds and Avantis Large

-0.22

Correlation Coefficient

American Funds  Avantis Large

Very good diversification

The 3 months correlation between American and Avantis is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Inflation and Avantis Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avantis Large Cap 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 Avantis Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avantis Large Cap has no effect on the direction of American Funds i.e., American Funds and Avantis Large go up and down completely randomly.

Pair Corralation between American Funds and Avantis Large

Assuming the 90 days horizon American Funds is expected to generate 21.19 times less return on investment than Avantis Large. But when comparing it to its historical volatility, American Funds Inflation is 2.13 times less risky than Avantis Large. It trades about 0.01 of its potential returns per unit of risk. Avantis Large Cap is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,046  in Avantis Large Cap on September 22, 2024 and sell it today you would earn a total of  376.00  from holding Avantis Large Cap or generate 35.95% return on investment over 90 days.

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

American Funds Inflation  vs.  Avantis Large Cap

American Funds Inflation

Risk-Adjusted Performance

0 of 100

Very Weak

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

Avantis Large Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avantis Large Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Avantis Large 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 Avantis Large

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

The idea behind American Funds Inflation and Avantis Large Cap 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.