Correlation Between Value Fund and American Century

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

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

Diversification Opportunities for Value Fund and American Century

0.91

Correlation Coefficient

Value Fund  American Century

Almost no diversification

The 3 months correlation between Value and American is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Value Fund A and American Century Heritage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Century Heritage and Value Fund 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 Value Fund A 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 Heritage has no effect on the direction of Value Fund i.e., Value Fund and American Century go up and down completely randomly.

Pair Corralation between Value Fund and American Century

Assuming the 90 days horizon Value Fund is expected to generate 2.78 times less return on investment than American Century. But when comparing it to its historical volatility, Value Fund A is 1.66 times less risky than American Century. It trades about 0.32 of its potential returns per unit of risk. American Century Heritage is currently generating about 0.53 of returns per unit of risk over similar time horizon. If you would invest  3,036  in American Century Heritage on September 5, 2024 and sell it today you would earn a total of  413.00  from holding American Century Heritage or generate 13.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

Value Fund A  vs.  American Century Heritage

Value Fund A

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Value Fund A are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Value Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Century Heritage

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in American Century Heritage are ranked lower than 26 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, American Century showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Value Fund and American Century

The main advantage of trading using opposite Value Fund and American Century positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Value Fund 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 Value Fund A and American Century Heritage 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.