Correlation Between American Funds and Nasdaq 100

Can any of the company-specific risk be diversified away by investing in both American Funds and Nasdaq 100 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 Nasdaq 100 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American Funds Income and Nasdaq 100 Profund Nasdaq 100, you can compare the effects of market volatilities on American Funds and Nasdaq 100 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 Nasdaq 100. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Nasdaq 100.

Diversification Opportunities for American Funds and Nasdaq 100

0.02

Correlation Coefficient

American Funds  Nasdaq 100

Significant diversification

The 3 months correlation between American and Nasdaq is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Income and Nasdaq 100 Profund Nasdaq 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq 100 Profund 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 Income are associated (or correlated) with Nasdaq 100. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq 100 Profund has no effect on the direction of American Funds i.e., American Funds and Nasdaq 100 go up and down completely randomly.

Pair Corralation between American Funds and Nasdaq 100

Assuming the 90 days horizon American Funds Income is expected to generate 0.44 times more return on investment than Nasdaq 100. However, American Funds Income is 2.26 times less risky than Nasdaq 100. It trades about -0.01 of its potential returns per unit of risk. Nasdaq 100 Profund Nasdaq 100 is currently generating about -0.02 per unit of risk. If you would invest  1,332  in American Funds Income on October 23, 2024 and sell it today you would lose (2.00) from holding American Funds Income or give up 0.15% of portfolio value over 90 days.

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

American Funds Income  vs.  Nasdaq 100 Profund Nasdaq 100

American Funds Income

Risk-Adjusted Performance

0 of 100

Very Weak

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

Nasdaq 100 Profund

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq 100 Profund Nasdaq 100 are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Nasdaq 100 may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with American Funds and Nasdaq 100

The main advantage of trading using opposite American Funds and Nasdaq 100 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Nasdaq 100 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 Nasdaq 100 will offset losses from the drop in Nasdaq 100's long position.

The idea behind American Funds Income and Nasdaq 100 Profund Nasdaq 100 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.