Correlation Between American Funds and Df Dent

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

By analyzing existing cross correlation between American Funds 2055 and Df Dent Premier, you can compare the effects of market volatilities on American Funds and Df Dent 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 Df Dent. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Df Dent.

Diversification Opportunities for American Funds and Df Dent

0.85

Correlation Coefficient

American Funds  Df Dent

Very poor diversification

The 3 months correlation between American and DFDPX is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding American Funds 2055 and Df Dent Premier in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Df Dent Premier 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 2055 are associated (or correlated) with Df Dent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Df Dent Premier has no effect on the direction of American Funds i.e., American Funds and Df Dent go up and down completely randomly.

Pair Corralation between American Funds and Df Dent

Assuming the 90 days horizon American Funds is expected to generate 1.24 times less return on investment than Df Dent. But when comparing it to its historical volatility, American Funds 2055 is 1.37 times less risky than Df Dent. It trades about 0.17 of its potential returns per unit of risk. Df Dent Premier is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  4,119  in Df Dent Premier on September 5, 2024 and sell it today you would earn a total of  333.00  from holding Df Dent Premier or generate 8.08% return on investment over 90 days.

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

American Funds 2055  vs.  Df Dent Premier

American Funds 2055

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds 2055 are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, American Funds may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Df Dent Premier

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Df Dent Premier are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Df Dent may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with American Funds and Df Dent

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

The idea behind American Funds 2055 and Df Dent Premier 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.