Correlation Between American Century and First Trust

Can any of the company-specific risk be diversified away by investing in both American Century and First Trust 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 First Trust 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 First Trust Multi Asset, you can compare the effects of market volatilities on American Century and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Century and First Trust.

Diversification Opportunities for American Century and First Trust

0.86

Correlation Coefficient

American Century  First Trust

Very poor diversification

The 3 months correlation between American and First is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding American Century ETF and First Trust Multi Asset in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Multi 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Multi has no effect on the direction of American Century i.e., American Century and First Trust go up and down completely randomly.

Pair Corralation between American Century and First Trust

Given the investment horizon of 90 days American Century ETF is expected to generate 1.72 times more return on investment than First Trust. However, American Century is 1.72 times more volatile than First Trust Multi Asset. It trades about 0.16 of its potential returns per unit of risk. First Trust Multi Asset is currently generating about 0.06 per unit of risk. If you would invest  6,036  in American Century ETF on September 13, 2024 and sell it today you would earn a total of  432.00  from holding American Century ETF or generate 7.16% return on investment over 90 days.

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

American Century ETF  vs.  First Trust Multi Asset

American Century ETF

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Century ETF are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal technical and fundamental indicators, American Century may actually be approaching a critical reversion point that can send shares even higher in January 2025.

First Trust Multi

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Multi Asset are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable forward indicators, First Trust is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with American Century and First Trust

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

The idea behind American Century ETF and First Trust Multi Asset 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.