Correlation Between Income Stock and American Balanced

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

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

Diversification Opportunities for Income Stock and American Balanced

0.93

Correlation Coefficient

Income Stock  American Balanced

Almost no diversification

The 3 months correlation between Income and American is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Income Stock Fund and American Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Balanced and Income Stock 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 Stock Fund are associated (or correlated) with American Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Balanced has no effect on the direction of Income Stock i.e., Income Stock and American Balanced go up and down completely randomly.

Pair Corralation between Income Stock and American Balanced

Assuming the 90 days horizon Income Stock Fund is expected to under-perform the American Balanced. In addition to that, Income Stock is 1.16 times more volatile than American Balanced. It trades about -0.18 of its total potential returns per unit of risk. American Balanced is currently generating about -0.11 per unit of volatility. If you would invest  3,363  in American Balanced on February 7, 2024 and sell it today you would lose (51.00) from holding American Balanced or give up 1.52% of portfolio value over 90 days.

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

Income Stock Fund  vs.  American Balanced

Income Stock

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Income Stock Fund are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Income Stock is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Balanced

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Balanced are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, American Balanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Income Stock and American Balanced

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

The idea behind Income Stock Fund and American Balanced 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.