Correlation Between Madison Diversified and Amer Beacon

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

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

Diversification Opportunities for Madison Diversified and Amer Beacon

0.13

Correlation Coefficient

Madison Diversified  Amer Beacon

Average diversification

The 3 months correlation between Madison and Amer is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Madison Diversified Income and Amer Beacon Ark in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amer Beacon Ark and Madison Diversified 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 Madison Diversified Income are associated (or correlated) with Amer Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amer Beacon Ark has no effect on the direction of Madison Diversified i.e., Madison Diversified and Amer Beacon go up and down completely randomly.

Pair Corralation between Madison Diversified and Amer Beacon

Assuming the 90 days horizon Madison Diversified Income is expected to under-perform the Amer Beacon. But the mutual fund apears to be less risky and, when comparing its historical volatility, Madison Diversified Income is 7.06 times less risky than Amer Beacon. The mutual fund trades about -0.27 of its potential returns per unit of risk. The Amer Beacon Ark is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,686  in Amer Beacon Ark on October 9, 2024 and sell it today you would lose (5.00) from holding Amer Beacon Ark or give up 0.3% of portfolio value over 90 days.

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

Madison Diversified Income  vs.  Amer Beacon Ark

Madison Diversified

Risk-Adjusted Performance

0 of 100

Very Weak

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

Amer Beacon Ark

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amer Beacon Ark are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Amer Beacon showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Madison Diversified and Amer Beacon

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

The idea behind Madison Diversified Income and Amer Beacon Ark 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.