Correlation Between Walden Smid and American Beacon

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

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

Diversification Opportunities for Walden Smid and American Beacon

0.91

Correlation Coefficient

Walden Smid  American Beacon

Almost no diversification

The 3 months correlation between Walden and American is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Walden Smid Cap 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 Walden Smid 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 Walden Smid 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 Stephens has no effect on the direction of Walden Smid i.e., Walden Smid and American Beacon go up and down completely randomly.

Pair Corralation between Walden Smid and American Beacon

Assuming the 90 days horizon Walden Smid Cap is expected to generate 0.7 times more return on investment than American Beacon. However, Walden Smid Cap is 1.42 times less risky than American Beacon. It trades about -0.06 of its potential returns per unit of risk. American Beacon Stephens is currently generating about -0.09 per unit of risk. If you would invest  2,464  in Walden Smid Cap on December 30, 2024 and sell it today you would lose (83.00) from holding Walden Smid Cap or give up 3.37% of portfolio value over 90 days.

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

Walden Smid Cap  vs.  American Beacon Stephens

Walden Smid Cap

Risk-Adjusted Performance

Very Weak

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

American Beacon Stephens

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Beacon Stephens has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Walden Smid and American Beacon

The main advantage of trading using opposite Walden Smid and American Beacon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walden Smid 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 Walden Smid Cap 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.