Correlation Between Small Company and American Century

Can any of the company-specific risk be diversified away by investing in both Small Company 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 Company 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 Pany Fund and American Century Ultra, you can compare the effects of market volatilities on Small Company 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 Company with a short position of American Century. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Company and American Century.

Diversification Opportunities for Small Company and American Century

0.86

Correlation Coefficient

Small Company  American Century

Very poor diversification

The 3 months correlation between Small and American is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Small Pany Fund and American Century Ultra in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Century Ultra and Small Company 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 Pany Fund 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 Ultra has no effect on the direction of Small Company i.e., Small Company and American Century go up and down completely randomly.

Pair Corralation between Small Company and American Century

Assuming the 90 days horizon Small Company is expected to generate 1.13 times less return on investment than American Century. In addition to that, Small Company is 1.31 times more volatile than American Century Ultra. It trades about 0.16 of its total potential returns per unit of risk. American Century Ultra is currently generating about 0.24 per unit of volatility. If you would invest  10,042  in American Century Ultra on September 5, 2024 and sell it today you would earn a total of  1,045  from holding American Century Ultra or generate 10.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	97.62%
Values	Daily Returns

Small Pany Fund  vs.  American Century Ultra

Small Pany Fund

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Small Pany Fund are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Small Company may actually be approaching a critical reversion point that can send shares even higher in January 2025.

American Century Ultra

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Century Ultra are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, American Century showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Small Company and American Century

The main advantage of trading using opposite Small Company and American Century positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Company 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 Pany Fund and American Century Ultra 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .