Correlation Between American Funds and Cboe Vest

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

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

Diversification Opportunities for American Funds and Cboe Vest

0.73

Correlation Coefficient

American Funds  Cboe Vest

Poor diversification

The 3 months correlation between American and Cboe is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Retirement and Cboe Vest Sp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cboe Vest Sp 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 Retirement are associated (or correlated) with Cboe Vest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cboe Vest Sp has no effect on the direction of American Funds i.e., American Funds and Cboe Vest go up and down completely randomly.

Pair Corralation between American Funds and Cboe Vest

Assuming the 90 days horizon American Funds Retirement is expected to generate 0.45 times more return on investment than Cboe Vest. However, American Funds Retirement is 2.22 times less risky than Cboe Vest. It trades about 0.12 of its potential returns per unit of risk. Cboe Vest Sp is currently generating about -0.12 per unit of risk. If you would invest  1,246  in American Funds Retirement on October 22, 2024 and sell it today you would earn a total of  12.00  from holding American Funds Retirement or generate 0.96% return on investment over 90 days.

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

American Funds Retirement  vs.  Cboe Vest Sp

American Funds Retirement

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Funds Retirement 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.

Cboe Vest Sp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cboe Vest Sp has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with American Funds and Cboe Vest

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

The idea behind American Funds Retirement and Cboe Vest Sp 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.