Correlation Between Morningstar Defensive and American Mutual

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

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

Diversification Opportunities for Morningstar Defensive and American Mutual

0.29

Correlation Coefficient

Morningstar Defensive  American Mutual

Modest diversification

The 3 months correlation between Morningstar and American is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar Defensive Bond and American Mutual Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Mutual and Morningstar 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 Morningstar Defensive Bond are associated (or correlated) with American Mutual. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Mutual has no effect on the direction of Morningstar Defensive i.e., Morningstar Defensive and American Mutual go up and down completely randomly.

Pair Corralation between Morningstar Defensive and American Mutual

Assuming the 90 days horizon Morningstar Defensive Bond is expected to generate 0.14 times more return on investment than American Mutual. However, Morningstar Defensive Bond is 7.13 times less risky than American Mutual. It trades about -0.09 of its potential returns per unit of risk. American Mutual Fund is currently generating about -0.1 per unit of risk. If you would invest  973.00  in Morningstar Defensive Bond on October 7, 2024 and sell it today you would lose (7.00) from holding Morningstar Defensive Bond or give up 0.72% of portfolio value over 90 days.

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

Morningstar Defensive Bond  vs.  American Mutual Fund

Morningstar Defensive

Risk-Adjusted Performance

0 of 100

Very Weak

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

American Mutual

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Morningstar Defensive and American Mutual

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

The idea behind Morningstar Defensive Bond and American Mutual Fund 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.