Correlation Between American Funds and Intermediate Bond

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

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

Diversification Opportunities for American Funds and Intermediate Bond

0.54

Correlation Coefficient

American Funds  Intermediate Bond

Very weak diversification

The 3 months correlation between American and Intermediate is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Preservation and Intermediate Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intermediate Bond 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 Preservation are associated (or correlated) with Intermediate Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intermediate Bond has no effect on the direction of American Funds i.e., American Funds and Intermediate Bond go up and down completely randomly.

Pair Corralation between American Funds and Intermediate Bond

Assuming the 90 days horizon American Funds Preservation is expected to generate 0.88 times more return on investment than Intermediate Bond. However, American Funds Preservation is 1.13 times less risky than Intermediate Bond. It trades about -0.26 of its potential returns per unit of risk. Intermediate Bond Fund is currently generating about -0.35 per unit of risk. If you would invest  944.00  in American Funds Preservation on October 13, 2024 and sell it today you would lose (9.00) from holding American Funds Preservation or give up 0.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.0%
Values	Daily Returns

American Funds Preservation  vs.  Intermediate Bond Fund

American Funds Prese

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Funds Preservation 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.

Intermediate Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind American Funds Preservation and Intermediate Bond Fund 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.