Correlation Between American Funds and Morningstar Defensive

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

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

Diversification Opportunities for American Funds and Morningstar Defensive

0.0

Correlation Coefficient

American Funds  Morningstar Defensive

Pay attention - limited upside

The 3 months correlation between American and Morningstar is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Government and Morningstar Defensive Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morningstar Defensive 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 Government are associated (or correlated) with Morningstar Defensive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Morningstar Defensive has no effect on the direction of American Funds i.e., American Funds and Morningstar Defensive go up and down completely randomly.

Pair Corralation between American Funds and Morningstar Defensive

If you would invest  100.00  in American Funds Government on October 9, 2024 and sell it today you would earn a total of  0.00  from holding American Funds Government or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

American Funds Government  vs.  Morningstar Defensive Bond

American Funds Government

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Funds Government 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.

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.

Pair Trading with American Funds and Morningstar Defensive

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

The idea behind American Funds Government and Morningstar Defensive Bond 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.