Correlation Between Vanguard Balanced and American Funds

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

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

Diversification Opportunities for Vanguard Balanced and American Funds

0.94

Correlation Coefficient

Vanguard Balanced  American Funds

Almost no diversification

The 3 months correlation between Vanguard and American is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Balanced Index and American Funds American in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds American and Vanguard Balanced 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 Vanguard Balanced Index 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 American has no effect on the direction of Vanguard Balanced i.e., Vanguard Balanced and American Funds go up and down completely randomly.

Pair Corralation between Vanguard Balanced and American Funds

Assuming the 90 days horizon Vanguard Balanced is expected to generate 1.11 times less return on investment than American Funds. In addition to that, Vanguard Balanced is 1.03 times more volatile than American Funds American. It trades about 0.13 of its total potential returns per unit of risk. American Funds American is currently generating about 0.15 per unit of volatility. If you would invest  3,055  in American Funds American on September 4, 2024 and sell it today you would earn a total of  640.00  from holding American Funds American or generate 20.95% return on investment over 90 days.

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

Vanguard Balanced Index  vs.  American Funds American

Vanguard Balanced Index

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Balanced Index are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Balanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Funds American

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds American are ranked lower than 12 (%) 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.

Pair Trading with Vanguard Balanced and American Funds

The main advantage of trading using opposite Vanguard Balanced and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Balanced 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 Vanguard Balanced Index and American Funds American 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.