Correlation Between American Funds and New Perspective
Can any of the company-specific risk be diversified away by investing in both American Funds and New Perspective 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 New Perspective into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds 2035 and New Perspective Fund, you can compare the effects of market volatilities on American Funds and New Perspective 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 New Perspective. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and New Perspective.
Diversification Opportunities for American Funds and New Perspective
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between American and New is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding American Funds 2035 and New Perspective Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Perspective 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 2035 are associated (or correlated) with New Perspective. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Perspective has no effect on the direction of American Funds i.e., American Funds and New Perspective go up and down completely randomly.
Pair Corralation between American Funds and New Perspective
Assuming the 90 days horizon American Funds is expected to generate 1.4 times less return on investment than New Perspective. But when comparing it to its historical volatility, American Funds 2035 is 1.61 times less risky than New Perspective. It trades about 0.31 of its potential returns per unit of risk. New Perspective Fund is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 6,038 in New Perspective Fund on May 1, 2025 and sell it today you would earn a total of 759.00 from holding New Perspective Fund or generate 12.57% 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 2035 vs. New Perspective Fund
Performance |
| Timeline |
| American Funds 2035 |
| New Perspective |
American Funds and New Perspective Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and New Perspective
The main advantage of trading using opposite American Funds and New Perspective positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, New Perspective 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 New Perspective will offset losses from the drop in New Perspective's long position.| American Funds vs. American Funds 2030 | American Funds vs. American Funds 2040 | American Funds vs. American Funds 2045 | American Funds vs. American Funds 2025 |
| New Perspective vs. Prudential Qma Large Cap | New Perspective vs. Transamerica Large Cap | New Perspective vs. M Large Cap | New Perspective vs. Fidelity Large Cap |
Check out your portfolio center.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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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