Correlation Between Sterling Capital and American Century

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

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

Diversification Opportunities for Sterling Capital and American Century

0.95

Correlation Coefficient

Sterling Capital  American Century

Almost no diversification

The 3 months correlation between Sterling and American is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Sterling Capital Focus and American Century Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Century Quality and Sterling Capital 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 Sterling Capital Focus 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 Quality has no effect on the direction of Sterling Capital i.e., Sterling Capital and American Century go up and down completely randomly.

Pair Corralation between Sterling Capital and American Century

Considering the 90-day investment horizon Sterling Capital is expected to generate 1.43 times less return on investment than American Century. In addition to that, Sterling Capital is 1.26 times more volatile than American Century Quality. It trades about 0.16 of its total potential returns per unit of risk. American Century Quality is currently generating about 0.29 per unit of volatility. If you would invest  8,755  in American Century Quality on September 12, 2024 and sell it today you would earn a total of  1,615  from holding American Century Quality or generate 18.45% return on investment over 90 days.

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

Sterling Capital Focus  vs.  American Century Quality

Sterling Capital Focus

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sterling Capital Focus are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Sterling Capital may actually be approaching a critical reversion point that can send shares even higher in January 2025.

American Century Quality

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Century Quality are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, American Century displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sterling Capital and American Century

The main advantage of trading using opposite Sterling Capital and American Century positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sterling Capital 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 Sterling Capital Focus and American Century Quality 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.