Correlation Between American Funds and Goldman Sachs

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

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

Diversification Opportunities for American Funds and Goldman Sachs

0.97

Correlation Coefficient

American Funds  Goldman Sachs

Almost no diversification

The 3 months correlation between American and Goldman is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Government and Goldman Sachs Government in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goldman Sachs Government 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 Government are associated (or correlated) with Goldman Sachs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goldman Sachs Government has no effect on the direction of American Funds i.e., American Funds and Goldman Sachs go up and down completely randomly.

Pair Corralation between American Funds and Goldman Sachs

Assuming the 90 days horizon American Funds Government is expected to generate 1.02 times more return on investment than Goldman Sachs. However, American Funds is 1.02 times more volatile than Goldman Sachs Government. It trades about 0.06 of its potential returns per unit of risk. Goldman Sachs Government is currently generating about 0.03 per unit of risk. If you would invest  1,185  in American Funds Government on November 29, 2024 and sell it today you would earn a total of  12.00  from holding American Funds Government or generate 1.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.33%
Values	Daily Returns

American Funds Government  vs.  Goldman Sachs Government

American Funds Government

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds Government are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Goldman Sachs Government

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Goldman Sachs Government are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Goldman Sachs 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 Goldman Sachs

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

The idea behind American Funds Government and Goldman Sachs Government 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.