Correlation Between Fundamental Large and American Beacon

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

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

Diversification Opportunities for Fundamental Large and American Beacon

0.8

Correlation Coefficient

Fundamental Large  American Beacon

Very poor diversification

The 3 months correlation between Fundamental and American is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Fundamental Large Cap and American Beacon Ark in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Ark and Fundamental Large 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 Fundamental Large Cap 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 Ark has no effect on the direction of Fundamental Large i.e., Fundamental Large and American Beacon go up and down completely randomly.

Pair Corralation between Fundamental Large and American Beacon

Assuming the 90 days horizon Fundamental Large Cap is expected to under-perform the American Beacon. But the mutual fund apears to be less risky and, when comparing its historical volatility, Fundamental Large Cap is 2.7 times less risky than American Beacon. The mutual fund trades about -0.11 of its potential returns per unit of risk. The American Beacon Ark is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  1,551  in American Beacon Ark on October 11, 2024 and sell it today you would lose (42.00) from holding American Beacon Ark or give up 2.71% of portfolio value over 90 days.

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

Fundamental Large Cap  vs.  American Beacon Ark

Fundamental Large Cap

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fundamental Large Cap are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Fundamental Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Beacon Ark

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Beacon Ark are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, American Beacon showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fundamental Large and American Beacon

The main advantage of trading using opposite Fundamental Large and American Beacon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fundamental Large 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 Fundamental Large Cap and American Beacon Ark 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.