Correlation Between American Funds and Vanguard Wellesley

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

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

Diversification Opportunities for American Funds and Vanguard Wellesley

0.95

Correlation Coefficient

American Funds  Vanguard Wellesley

Almost no diversification

The 3 months correlation between American and Vanguard is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Income and Vanguard Wellesley Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Wellesley and American Funds 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 American Funds Income are associated (or correlated) with Vanguard Wellesley. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Wellesley has no effect on the direction of American Funds i.e., American Funds and Vanguard Wellesley go up and down completely randomly.

Pair Corralation between American Funds and Vanguard Wellesley

Assuming the 90 days horizon American Funds Income is expected to generate 1.0 times more return on investment than Vanguard Wellesley. However, American Funds is 1.0 times more volatile than Vanguard Wellesley Income. It trades about 0.03 of its potential returns per unit of risk. Vanguard Wellesley Income is currently generating about 0.02 per unit of risk. If you would invest  1,263  in American Funds Income on January 29, 2024 and sell it today you would earn a total of  6.00  from holding American Funds Income or generate 0.48% return on investment over 90 days.

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

American Funds Income  vs.  Vanguard Wellesley Income

American Funds Me

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds Income are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong 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.

Vanguard Wellesley

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with American Funds and Vanguard Wellesley

The main advantage of trading using opposite American Funds and Vanguard Wellesley positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Vanguard Wellesley 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 Vanguard Wellesley will offset losses from the drop in Vanguard Wellesley's long position.

The idea behind American Funds Income and Vanguard Wellesley Income 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.