Correlation Between Small Cap and American Century

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

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

Diversification Opportunities for Small Cap and American Century

-0.41

Correlation Coefficient

Small Cap  American Century

Very good diversification

The 3 months correlation between Small and American is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Profund Small Cap and American Century Diversified in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Century Div and Small Cap 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 Small Cap Profund Small Cap 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 Div has no effect on the direction of Small Cap i.e., Small Cap and American Century go up and down completely randomly.

Pair Corralation between Small Cap and American Century

Assuming the 90 days horizon Small Cap Profund Small Cap is expected to generate 4.12 times more return on investment than American Century. However, Small Cap is 4.12 times more volatile than American Century Diversified. It trades about 0.0 of its potential returns per unit of risk. American Century Diversified is currently generating about -0.17 per unit of risk. If you would invest  9,055  in Small Cap Profund Small Cap on September 21, 2024 and sell it today you would lose (41.00) from holding Small Cap Profund Small Cap or give up 0.45% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Small Cap Profund Small Cap  vs.  American Century Diversified

Small Cap Profund

Risk-Adjusted Performance

0 of 100

Very Weak

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

American Century Div

Risk-Adjusted Performance

0 of 100

Very Weak

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

The main advantage of trading using opposite Small Cap and American Century positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap 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 Small Cap Profund Small Cap and American Century Diversified 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.