Correlation Between Icon Equity and American Beacon

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

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

Diversification Opportunities for Icon Equity and American Beacon

0.59

Correlation Coefficient

Icon Equity  American Beacon

Very weak diversification

The 3 months correlation between Icon and American is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Icon Equity Income and American Beacon Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Balanced and Icon Equity 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 Icon Equity Income 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 Balanced has no effect on the direction of Icon Equity i.e., Icon Equity and American Beacon go up and down completely randomly.

Pair Corralation between Icon Equity and American Beacon

Assuming the 90 days horizon Icon Equity Income is expected to generate 1.39 times more return on investment than American Beacon. However, Icon Equity is 1.39 times more volatile than American Beacon Balanced. It trades about 0.08 of its potential returns per unit of risk. American Beacon Balanced is currently generating about 0.02 per unit of risk. If you would invest  1,596  in Icon Equity Income on December 29, 2024 and sell it today you would earn a total of  61.00  from holding Icon Equity Income or generate 3.82% return on investment over 90 days.

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

Icon Equity Income  vs.  American Beacon Balanced

Icon Equity Income

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Icon Equity Income are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Icon Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Beacon Balanced

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Beacon Balanced are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic 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 Icon Equity and American Beacon

The main advantage of trading using opposite Icon Equity and American Beacon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Icon Equity 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 Icon Equity Income and American Beacon Balanced 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.

Check out your portfolio center.

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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .