Correlation Between Rational Defensive and American Beacon

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

By analyzing existing cross correlation between Rational Defensive Growth and American Beacon Ssi, you can compare the effects of market volatilities on Rational Defensive and American Beacon 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 Rational Defensive with a short position of American Beacon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rational Defensive and American Beacon.

Diversification Opportunities for Rational Defensive and American Beacon

0.65

Correlation Coefficient

Rational Defensive  American Beacon

Poor diversification

The 3 months correlation between Rational and American is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Rational Defensive Growth and American Beacon Ssi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Ssi and Rational Defensive 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 Rational Defensive Growth are associated (or correlated) with American Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Beacon Ssi has no effect on the direction of Rational Defensive i.e., Rational Defensive and American Beacon go up and down completely randomly.

Pair Corralation between Rational Defensive and American Beacon

Assuming the 90 days horizon Rational Defensive Growth is expected to generate 12.47 times more return on investment than American Beacon. However, Rational Defensive is 12.47 times more volatile than American Beacon Ssi. It trades about 0.12 of its potential returns per unit of risk. American Beacon Ssi is currently generating about 0.42 per unit of risk. If you would invest  4,091  in Rational Defensive Growth on October 25, 2024 and sell it today you would earn a total of  85.00  from holding Rational Defensive Growth or generate 2.08% return on investment over 90 days.

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

Rational Defensive Growth  vs.  American Beacon Ssi

Rational Defensive Growth

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rational Defensive Growth are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Rational Defensive may actually be approaching a critical reversion point that can send shares even higher in February 2025.

American Beacon Ssi

Risk-Adjusted Performance

36 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in American Beacon Ssi are ranked lower than 36 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward-looking indicators, American Beacon is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Rational Defensive and American Beacon

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

The idea behind Rational Defensive Growth and American Beacon Ssi 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.