Correlation Between American Funds and Lifestyle

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

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

Diversification Opportunities for American Funds and Lifestyle

0.92

Correlation Coefficient

American Funds  Lifestyle

Almost no diversification

The 3 months correlation between American and Lifestyle is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Income and Lifestyle Ii Moderate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lifestyle Ii Moderate 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 Income are associated (or correlated) with Lifestyle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lifestyle Ii Moderate has no effect on the direction of American Funds i.e., American Funds and Lifestyle go up and down completely randomly.

Pair Corralation between American Funds and Lifestyle

Assuming the 90 days horizon American Funds Income is expected to under-perform the Lifestyle. In addition to that, American Funds is 1.32 times more volatile than Lifestyle Ii Moderate. It trades about -0.14 of its total potential returns per unit of risk. Lifestyle Ii Moderate is currently generating about -0.12 per unit of volatility. If you would invest  1,108  in Lifestyle Ii Moderate on October 7, 2024 and sell it today you would lose (24.00) from holding Lifestyle Ii Moderate or give up 2.17% of portfolio value over 90 days.

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

American Funds Income  vs.  Lifestyle Ii Moderate

American Funds Income

Risk-Adjusted Performance

0 of 100

Very Weak

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

Lifestyle Ii Moderate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lifestyle Ii Moderate has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Lifestyle 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 Lifestyle

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

The idea behind American Funds Income and Lifestyle Ii Moderate 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.