Correlation Between Income Fund and American Funds

Can any of the company-specific risk be diversified away by investing in both Income 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 Income 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 Income Fund Of and American Funds Developing, you can compare the effects of market volatilities on Income 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 Income Fund with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Income Fund and American Funds.

Diversification Opportunities for Income Fund and American Funds

0.85

Correlation Coefficient

Income Fund  American Funds

Very poor diversification

The 3 months correlation between Income and American is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Income Fund Of and American Funds Developing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Developing and Income 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 Income Fund Of 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 Developing has no effect on the direction of Income Fund i.e., Income Fund and American Funds go up and down completely randomly.

Pair Corralation between Income Fund and American Funds

Assuming the 90 days horizon Income Fund Of is expected to under-perform the American Funds. But the mutual fund apears to be less risky and, when comparing its historical volatility, Income Fund Of is 1.83 times less risky than American Funds. The mutual fund trades about -0.11 of its potential returns per unit of risk. The American Funds Developing is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,059  in American Funds Developing on January 31, 2024 and sell it today you would lose (1.00) from holding American Funds Developing or give up 0.09% of portfolio value over 90 days.

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

Income Fund Of  vs.  American Funds Developing

Income Fund

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Income Fund Of are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Income Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Funds Developing

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds Developing are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, American Funds may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Income Fund and American Funds

The main advantage of trading using opposite Income Fund and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Income 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 Income Fund Of and American Funds Developing 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..