Correlation Between American Century and Federated Hermes

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

By analyzing existing cross correlation between American Century ETF and Federated Hermes ETF, you can compare the effects of market volatilities on American Century and Federated Hermes 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 Federated Hermes. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Century and Federated Hermes.

Diversification Opportunities for American Century and Federated Hermes

0.75

Correlation Coefficient

American Century  Federated Hermes

Poor diversification

The 3 months correlation between American and Federated is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding American Century ETF and Federated Hermes ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Hermes ETF 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 ETF are associated (or correlated) with Federated Hermes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Hermes ETF has no effect on the direction of American Century i.e., American Century and Federated Hermes go up and down completely randomly.

Pair Corralation between American Century and Federated Hermes

Given the investment horizon of 90 days American Century ETF is expected to under-perform the Federated Hermes. In addition to that, American Century is 2.14 times more volatile than Federated Hermes ETF. It trades about -0.13 of its total potential returns per unit of risk. Federated Hermes ETF is currently generating about -0.15 per unit of volatility. If you would invest  2,406  in Federated Hermes ETF on October 10, 2024 and sell it today you would lose (10.00) from holding Federated Hermes ETF or give up 0.42% of portfolio value over 90 days.

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

American Century ETF  vs.  Federated Hermes ETF

American Century ETF

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Century ETF are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat 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.

Federated Hermes ETF

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Federated Hermes ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Federated Hermes is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with American Century and Federated Hermes

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

The idea behind American Century ETF and Federated Hermes ETF 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.