Correlation Between Select STOXX and American Funds

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

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

Diversification Opportunities for Select STOXX and American Funds

0.09

Correlation Coefficient

Select STOXX  American Funds

Significant diversification

The 3 months correlation between Select and American is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Select STOXX Europe and American Funds New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds New and Select STOXX 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 Select STOXX Europe 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 New has no effect on the direction of Select STOXX i.e., Select STOXX and American Funds go up and down completely randomly.

Pair Corralation between Select STOXX and American Funds

Given the investment horizon of 90 days Select STOXX Europe is expected to under-perform the American Funds. In addition to that, Select STOXX is 1.8 times more volatile than American Funds New. It trades about -0.05 of its total potential returns per unit of risk. American Funds New is currently generating about -0.01 per unit of volatility. If you would invest  8,156  in American Funds New on August 17, 2024 and sell it today you would lose (44.00) from holding American Funds New or give up 0.54% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	28.57%
Values	Daily Returns

Select STOXX Europe  vs.  American Funds New

Select STOXX Europe

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Select STOXX Europe has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Select STOXX is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

American Funds New

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Funds New has generated negative risk-adjusted returns adding no value to fund investors. 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 Select STOXX and American Funds

The main advantage of trading using opposite Select STOXX and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Select STOXX 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 Select STOXX Europe and American Funds New 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 Commodity Directory module to find actively traded commodities issued by global exchanges.