Correlation Between American Century and Vanguard Mid-cap

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

By analyzing existing cross correlation between American Century High and Vanguard Mid Cap Index, you can compare the effects of market volatilities on American Century and Vanguard Mid-cap 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 Vanguard Mid-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Century and Vanguard Mid-cap.

Diversification Opportunities for American Century and Vanguard Mid-cap

0.31

Correlation Coefficient

American Century  Vanguard Mid-cap

Weak diversification

The 3 months correlation between American and Vanguard is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding American Century High and Vanguard Mid Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Mid Cap 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 High are associated (or correlated) with Vanguard Mid-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Mid Cap has no effect on the direction of American Century i.e., American Century and Vanguard Mid-cap go up and down completely randomly.

Pair Corralation between American Century and Vanguard Mid-cap

Assuming the 90 days horizon American Century High is expected to generate 0.25 times more return on investment than Vanguard Mid-cap. However, American Century High is 3.94 times less risky than Vanguard Mid-cap. It trades about 0.08 of its potential returns per unit of risk. Vanguard Mid Cap Index is currently generating about -0.08 per unit of risk. If you would invest  863.00  in American Century High on December 2, 2024 and sell it today you would earn a total of  9.00  from holding American Century High or generate 1.04% return on investment over 90 days.

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

American Century High  vs.  Vanguard Mid Cap Index

American Century High

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Century High are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, American Century is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Mid Cap

Risk-Adjusted Performance

Very Weak

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

Pair Trading with American Century and Vanguard Mid-cap

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

The idea behind American Century High and Vanguard Mid Cap Index 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.