Correlation Between American Funds and Biotechnology Ultrasector

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

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

Diversification Opportunities for American Funds and Biotechnology Ultrasector

0.5

Correlation Coefficient

American Funds  Biotechnology Ultrasector

Very weak diversification

The 3 months correlation between American and Biotechnology is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Washington and Biotechnology Ultrasector Prof in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biotechnology Ultrasector 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 Washington are associated (or correlated) with Biotechnology Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biotechnology Ultrasector has no effect on the direction of American Funds i.e., American Funds and Biotechnology Ultrasector go up and down completely randomly.

Pair Corralation between American Funds and Biotechnology Ultrasector

Assuming the 90 days horizon American Funds Washington is expected to generate 0.32 times more return on investment than Biotechnology Ultrasector. However, American Funds Washington is 3.17 times less risky than Biotechnology Ultrasector. It trades about 0.16 of its potential returns per unit of risk. Biotechnology Ultrasector Profund is currently generating about -0.06 per unit of risk. If you would invest  6,147  in American Funds Washington on December 2, 2024 and sell it today you would earn a total of  261.00  from holding American Funds Washington or generate 4.25% return on investment over 90 days.

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

American Funds Washington  vs.  Biotechnology Ultrasector Prof

American Funds Washington

Risk-Adjusted Performance

Very Weak

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

Biotechnology Ultrasector

Risk-Adjusted Performance

Very Weak

Over the last 90 days Biotechnology Ultrasector Profund 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 forward 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 Biotechnology Ultrasector

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

The idea behind American Funds Washington and Biotechnology Ultrasector Profund 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.