Correlation Between Wasatch Small and American Century

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

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

Diversification Opportunities for Wasatch Small and American Century

0.25

Correlation Coefficient

Wasatch Small  American Century

Modest diversification

The 3 months correlation between Wasatch and American is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Wasatch 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 Wasatch Small 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 Wasatch 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 Wasatch Small i.e., Wasatch Small and American Century go up and down completely randomly.

Pair Corralation between Wasatch Small and American Century

Assuming the 90 days horizon Wasatch Small Cap is expected to under-perform the American Century. In addition to that, Wasatch Small is 6.76 times more volatile than American Century Diversified. It trades about -0.1 of its total potential returns per unit of risk. American Century Diversified is currently generating about -0.19 per unit of volatility. If you would invest  941.00  in American Century Diversified on September 27, 2024 and sell it today you would lose (37.00) from holding American Century Diversified or give up 3.93% of portfolio value over 90 days.

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

Wasatch Small Cap  vs.  American Century Diversified

Wasatch Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wasatch Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund 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 Wasatch Small and American Century

The main advantage of trading using opposite Wasatch Small and American Century positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wasatch Small 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 Wasatch 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.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.