Correlation Between Qs Defensive and American Funds

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

By analyzing existing cross correlation between Qs Defensive Growth and American Funds 2045, you can compare the effects of market volatilities on Qs Defensive and American Funds 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 Qs Defensive with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Qs Defensive and American Funds.

Diversification Opportunities for Qs Defensive and American Funds

0.8

Correlation Coefficient

Qs Defensive  American Funds

Very poor diversification

The 3 months correlation between LMLRX and American is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Qs Defensive Growth and American Funds 2045 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds 2045 and Qs 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 Qs Defensive Growth are associated (or correlated) with American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds 2045 has no effect on the direction of Qs Defensive i.e., Qs Defensive and American Funds go up and down completely randomly.

Pair Corralation between Qs Defensive and American Funds

Assuming the 90 days horizon Qs Defensive is expected to generate 2.19 times less return on investment than American Funds. But when comparing it to its historical volatility, Qs Defensive Growth is 1.43 times less risky than American Funds. It trades about 0.25 of its potential returns per unit of risk. American Funds 2045 is currently generating about 0.38 of returns per unit of risk over similar time horizon. If you would invest  2,178  in American Funds 2045 on September 17, 2024 and sell it today you would earn a total of  62.00  from holding American Funds 2045 or generate 2.85% return on investment over 90 days.

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

Qs Defensive Growth  vs.  American Funds 2045

Qs Defensive Growth

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Qs Defensive Growth are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Qs Defensive is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Funds 2045

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds 2045 are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. 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.

Pair Trading with Qs Defensive and American Funds

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

The idea behind Qs Defensive Growth and American Funds 2045 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.