Correlation Between Us Small and American Funds

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

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

Diversification Opportunities for Us Small and American Funds

0.85

Correlation Coefficient

Us Small  American Funds

Very poor diversification

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

Pair Corralation between Us Small and American Funds

Assuming the 90 days horizon Us Small Cap is expected to generate 3.48 times more return on investment than American Funds. However, Us Small is 3.48 times more volatile than American Funds Conservative. It trades about 0.11 of its potential returns per unit of risk. American Funds Conservative is currently generating about 0.3 per unit of risk. If you would invest  4,669  in Us Small Cap on May 24, 2025 and sell it today you would earn a total of  316.00  from holding Us Small Cap or generate 6.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.39%
Values	Daily Returns

Us Small Cap  vs.  American Funds Conservative

Us Small Cap

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Us Small Cap are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Us Small may actually be approaching a critical reversion point that can send shares even higher in September 2025.

American Funds Conse

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds Conservative are ranked lower than 23 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Us Small and American Funds

The main advantage of trading using opposite Us Small and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Us Small 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 Us Small Cap and American Funds Conservative 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.