Correlation Between William Blair and American Beacon

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

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

Diversification Opportunities for William Blair and American Beacon

0.62

Correlation Coefficient

William Blair  American Beacon

Poor diversification

The 3 months correlation between William and American is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding William Blair Small Mid and American Beacon Bridgeway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Bridgeway and William Blair 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 William Blair Small Mid 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 Bridgeway has no effect on the direction of William Blair i.e., William Blair and American Beacon go up and down completely randomly.

Pair Corralation between William Blair and American Beacon

Assuming the 90 days horizon William Blair Small Mid is expected to under-perform the American Beacon. In addition to that, William Blair is 1.66 times more volatile than American Beacon Bridgeway. It trades about -0.13 of its total potential returns per unit of risk. American Beacon Bridgeway is currently generating about 0.01 per unit of volatility. If you would invest  2,258  in American Beacon Bridgeway on December 30, 2024 and sell it today you would earn a total of  7.00  from holding American Beacon Bridgeway or generate 0.31% return on investment over 90 days.

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

William Blair Small Mid  vs.  American Beacon Bridgeway

William Blair Small

Risk-Adjusted Performance

Very Weak

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

American Beacon Bridgeway

Risk-Adjusted Performance

Very Weak

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

Pair Trading with William Blair and American Beacon

The main advantage of trading using opposite William Blair and American Beacon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if William Blair 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 William Blair Small Mid and American Beacon Bridgeway 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.