Correlation Between American Funds and Fm Investments

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

By analyzing existing cross correlation between American Funds 2040 and Fm Investments Large, you can compare the effects of market volatilities on American Funds and Fm Investments 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 Fm Investments. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Fm Investments.

Diversification Opportunities for American Funds and Fm Investments

0.78

Correlation Coefficient

American Funds  Fm Investments

Poor diversification

The 3 months correlation between American and IAFLX is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding American Funds 2040 and Fm Investments Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fm Investments Large 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 2040 are associated (or correlated) with Fm Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fm Investments Large has no effect on the direction of American Funds i.e., American Funds and Fm Investments go up and down completely randomly.

Pair Corralation between American Funds and Fm Investments

Assuming the 90 days horizon American Funds is expected to generate 4.41 times less return on investment than Fm Investments. But when comparing it to its historical volatility, American Funds 2040 is 1.82 times less risky than Fm Investments. It trades about 0.1 of its potential returns per unit of risk. Fm Investments Large is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  1,736  in Fm Investments Large on September 14, 2024 and sell it today you would earn a total of  248.00  from holding Fm Investments Large or generate 14.29% return on investment over 90 days.

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

American Funds 2040  vs.  Fm Investments Large

American Funds 2040

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds 2040 are ranked lower than 7 (%) 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.

Fm Investments Large

Risk-Adjusted Performance

18 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fm Investments Large are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Fm Investments showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Funds and Fm Investments

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

The idea behind American Funds 2040 and Fm Investments Large 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.