Correlation Between Income Growth and American Century

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

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

Diversification Opportunities for Income Growth and American Century

0.9

Correlation Coefficient

Income Growth  American Century

Almost no diversification

The 3 months correlation between Income and American is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Income Growth Fund and American Century Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Century Small and Income Growth 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 Growth Fund are associated (or correlated) with American Century. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Century Small has no effect on the direction of Income Growth i.e., Income Growth and American Century go up and down completely randomly.

Pair Corralation between Income Growth and American Century

Assuming the 90 days horizon Income Growth is expected to generate 1.13 times less return on investment than American Century. But when comparing it to its historical volatility, Income Growth Fund is 1.55 times less risky than American Century. It trades about 0.03 of its potential returns per unit of risk. American Century Small is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,353  in American Century Small on September 21, 2024 and sell it today you would earn a total of  51.00  from holding American Century Small or generate 2.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.07%
Values	Daily Returns

Income Growth Fund  vs.  American Century Small

Income Growth

Risk-Adjusted Performance

0 of 100

Very Weak

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

American Century Small

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Century Small has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical indicators, American Century 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 Growth and American Century

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

The idea behind Income Growth Fund and American Century Small 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.

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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.