Correlation Between Sentinel Small and American Beacon

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

By analyzing existing cross correlation between Sentinel Small Pany and American Beacon Stephens, you can compare the effects of market volatilities on Sentinel Small and American Beacon 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 Sentinel Small with a short position of American Beacon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sentinel Small and American Beacon.

Diversification Opportunities for Sentinel Small and American Beacon

0.93

Correlation Coefficient

Sentinel Small  American Beacon

Almost no diversification

The 3 months correlation between Sentinel and American is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Sentinel Small Pany and American Beacon Stephens in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Stephens and Sentinel Small 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 Sentinel Small Pany are associated (or correlated) with American Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Beacon Stephens has no effect on the direction of Sentinel Small i.e., Sentinel Small and American Beacon go up and down completely randomly.

Pair Corralation between Sentinel Small and American Beacon

Assuming the 90 days horizon Sentinel Small is expected to generate 1.09 times less return on investment than American Beacon. But when comparing it to its historical volatility, Sentinel Small Pany is 1.05 times less risky than American Beacon. It trades about 0.18 of its potential returns per unit of risk. American Beacon Stephens is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,192  in American Beacon Stephens on September 5, 2024 and sell it today you would earn a total of  155.00  from holding American Beacon Stephens or generate 13.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Sentinel Small Pany  vs.  American Beacon Stephens

Sentinel Small Pany

Risk-Adjusted Performance

13 of 100

Good

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

American Beacon Stephens

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Beacon Stephens are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, American Beacon may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Sentinel Small and American Beacon

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

The idea behind Sentinel Small Pany and American Beacon Stephens 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.