Correlation Between American Funds and Professionally Managed

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

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

Diversification Opportunities for American Funds and Professionally Managed

0.79

Correlation Coefficient

American Funds  Professionally Managed

Poor diversification

The 3 months correlation between American and Professionally is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Smallcap and Professionally Managed Portfol in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Professionally Managed 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 Smallcap are associated (or correlated) with Professionally Managed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Professionally Managed has no effect on the direction of American Funds i.e., American Funds and Professionally Managed go up and down completely randomly.

Pair Corralation between American Funds and Professionally Managed

Assuming the 90 days horizon American Funds Smallcap is expected to generate 0.85 times more return on investment than Professionally Managed. However, American Funds Smallcap is 1.17 times less risky than Professionally Managed. It trades about -0.08 of its potential returns per unit of risk. Professionally Managed Portfolios is currently generating about -0.3 per unit of risk. If you would invest  6,840  in American Funds Smallcap on December 24, 2024 and sell it today you would lose (345.00) from holding American Funds Smallcap or give up 5.04% of portfolio value over 90 days.

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

American Funds Smallcap  vs.  Professionally Managed Portfol

American Funds Smallcap

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Funds Smallcap has generated negative risk-adjusted returns adding no value to fund investors. 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.

Professionally Managed

Risk-Adjusted Performance

Very Weak

Over the last 90 days Professionally Managed Portfolios 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 April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with American Funds and Professionally Managed

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

The idea behind American Funds Smallcap and Professionally Managed Portfolios 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.