Correlation Between American Century and WisdomTree SmallCap

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

Diversification Opportunities for American Century and WisdomTree SmallCap

0.69

Correlation Coefficient

American Century  WisdomTree SmallCap

Poor diversification

The 3 months correlation between American and WisdomTree is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding American Century ETF and WisdomTree SmallCap Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree SmallCap 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 WisdomTree SmallCap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree SmallCap has no effect on the direction of American Century i.e., American Century and WisdomTree SmallCap go up and down completely randomly.

Pair Corralation between American Century and WisdomTree SmallCap

Given the investment horizon of 90 days American Century ETF is expected to generate 0.8 times more return on investment than WisdomTree SmallCap. However, American Century ETF is 1.25 times less risky than WisdomTree SmallCap. It trades about -0.12 of its potential returns per unit of risk. WisdomTree SmallCap Dividend is currently generating about -0.19 per unit of risk. If you would invest  7,024  in American Century ETF on December 5, 2024 and sell it today you would lose (413.00) from holding American Century ETF or give up 5.88% 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.  WisdomTree SmallCap Dividend

American Century ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Century ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable essential indicators, American Century is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

WisdomTree SmallCap

Risk-Adjusted Performance

Very Weak

Over the last 90 days WisdomTree SmallCap Dividend has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

Pair Trading with American Century and WisdomTree SmallCap

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

The idea behind American Century ETF and WisdomTree SmallCap Dividend 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.