Correlation Between Balanced Fund and American Funds

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

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

Diversification Opportunities for Balanced Fund and American Funds

0.86

Correlation Coefficient

Balanced Fund  American Funds

Very poor diversification

The 3 months correlation between Balanced and American is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Balanced Fund Investor and American Funds Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Balanced and Balanced Fund 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 Balanced Fund Investor 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 Balanced has no effect on the direction of Balanced Fund i.e., Balanced Fund and American Funds go up and down completely randomly.

Pair Corralation between Balanced Fund and American Funds

Assuming the 90 days horizon Balanced Fund Investor is expected to under-perform the American Funds. But the mutual fund apears to be less risky and, when comparing its historical volatility, Balanced Fund Investor is 1.04 times less risky than American Funds. The mutual fund trades about -0.07 of its potential returns per unit of risk. The American Funds Balanced is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  1,878  in American Funds Balanced on September 27, 2024 and sell it today you would lose (11.00) from holding American Funds Balanced or give up 0.59% of portfolio value over 90 days.

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

Balanced Fund Investor  vs.  American Funds Balanced

Balanced Fund Investor

Risk-Adjusted Performance

0 of 100

Very Weak

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

American Funds Balanced

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Funds Balanced 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.

Pair Trading with Balanced Fund and American Funds

The main advantage of trading using opposite Balanced Fund and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Balanced Fund 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 Balanced Fund Investor and American Funds Balanced 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..