Correlation Between Commodities Strategy and American Funds

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

By analyzing existing cross correlation between Commodities Strategy Fund and American Funds Preservation, you can compare the effects of market volatilities on Commodities Strategy and American Funds 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 Commodities Strategy with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commodities Strategy and American Funds.

Diversification Opportunities for Commodities Strategy and American Funds

0.18

Correlation Coefficient

Commodities Strategy  American Funds

Average diversification

The 3 months correlation between Commodities and American is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Commodities Strategy Fund and American Funds Preservation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Prese and Commodities Strategy 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 Commodities Strategy Fund are associated (or correlated) with American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Prese has no effect on the direction of Commodities Strategy i.e., Commodities Strategy and American Funds go up and down completely randomly.

Pair Corralation between Commodities Strategy and American Funds

Assuming the 90 days horizon Commodities Strategy is expected to generate 1.13 times less return on investment than American Funds. In addition to that, Commodities Strategy is 4.9 times more volatile than American Funds Preservation. It trades about 0.01 of its total potential returns per unit of risk. American Funds Preservation is currently generating about 0.06 per unit of volatility. If you would invest  880.00  in American Funds Preservation on October 10, 2024 and sell it today you would earn a total of  58.00  from holding American Funds Preservation or generate 6.59% return on investment over 90 days.

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

Commodities Strategy Fund  vs.  American Funds Preservation

Commodities Strategy

Risk-Adjusted Performance

0 of 100

Weak

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

American Funds Prese

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Funds Preservation 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.

Pair Trading with Commodities Strategy and American Funds

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

The idea behind Commodities Strategy Fund and American Funds Preservation 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.