Correlation Between American Century and AdvisorShares

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

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

Diversification Opportunities for American Century and AdvisorShares

0.89

Correlation Coefficient

American Century  AdvisorShares

Very poor diversification

The 3 months correlation between American and AdvisorShares is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding American Century Quality and AdvisorShares Q Dynamic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AdvisorShares Q Dynamic and American Century 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 Century Quality are associated (or correlated) with AdvisorShares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AdvisorShares Q Dynamic has no effect on the direction of American Century i.e., American Century and AdvisorShares go up and down completely randomly.

Pair Corralation between American Century and AdvisorShares

Given the investment horizon of 90 days American Century Quality is expected to generate 1.16 times more return on investment than AdvisorShares. However, American Century is 1.16 times more volatile than AdvisorShares Q Dynamic. It trades about 0.24 of its potential returns per unit of risk. AdvisorShares Q Dynamic is currently generating about 0.11 per unit of risk. If you would invest  8,893  in American Century Quality on August 30, 2024 and sell it today you would earn a total of  1,392  from holding American Century Quality or generate 15.65% return on investment over 90 days.

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

American Century Quality  vs.  AdvisorShares Q Dynamic

American Century Quality

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Century Quality are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, American Century displayed solid returns over the last few months and may actually be approaching a breakup point.

AdvisorShares Q Dynamic

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AdvisorShares Q Dynamic are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, AdvisorShares is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with American Century and AdvisorShares

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

The idea behind American Century Quality and AdvisorShares Q Dynamic 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.