Correlation Between American Funds and Northeast Investors

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

By analyzing existing cross correlation between American Funds Tax Advantaged and Northeast Investors Trust, you can compare the effects of market volatilities on American Funds and Northeast Investors 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 Northeast Investors. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Northeast Investors.

Diversification Opportunities for American Funds and Northeast Investors

-0.16

Correlation Coefficient

American Funds  Northeast Investors

Good diversification

The 3 months correlation between American and Northeast is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Tax Advantaged and Northeast Investors Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northeast Investors Trust 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 Tax Advantaged are associated (or correlated) with Northeast Investors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northeast Investors Trust has no effect on the direction of American Funds i.e., American Funds and Northeast Investors go up and down completely randomly.

Pair Corralation between American Funds and Northeast Investors

Assuming the 90 days horizon American Funds Tax Advantaged is expected to generate 0.91 times more return on investment than Northeast Investors. However, American Funds Tax Advantaged is 1.1 times less risky than Northeast Investors. It trades about 0.05 of its potential returns per unit of risk. Northeast Investors Trust is currently generating about 0.04 per unit of risk. If you would invest  1,634  in American Funds Tax Advantaged on September 14, 2024 and sell it today you would earn a total of  16.00  from holding American Funds Tax Advantaged or generate 0.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

American Funds Tax Advantaged  vs.  Northeast Investors Trust

American Funds Tax

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds Tax Advantaged are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. 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.

Northeast Investors Trust

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Northeast Investors Trust has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Northeast Investors 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 Northeast Investors

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

The idea behind American Funds Tax Advantaged and Northeast Investors Trust 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.