Correlation Between First Trust and American Century

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

By analyzing existing cross correlation between First Trust TCW and American Century Investments, you can compare the effects of market volatilities on First Trust 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 First Trust with a short position of American Century. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and American Century.

Diversification Opportunities for First Trust and American Century

-0.3

Correlation Coefficient

First Trust  American Century

Very good diversification

The 3 months correlation between First and American is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding First Trust TCW and American Century Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Century Inv and First Trust 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 First Trust TCW 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 Inv has no effect on the direction of First Trust i.e., First Trust and American Century go up and down completely randomly.

Pair Corralation between First Trust and American Century

Given the investment horizon of 90 days First Trust TCW is expected to generate 2.06 times more return on investment than American Century. However, First Trust is 2.06 times more volatile than American Century Investments. It trades about 0.02 of its potential returns per unit of risk. American Century Investments is currently generating about -0.03 per unit of risk. If you would invest  1,638  in First Trust TCW on September 2, 2024 and sell it today you would earn a total of  11.00  from holding First Trust TCW or generate 0.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	37.5%
Values	Daily Returns

First Trust TCW  vs.  American Century Investments

First Trust TCW

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust TCW are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong forward indicators, First Trust is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

American Century Inv

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Century Investments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, American Century is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Trust and American Century

The main advantage of trading using opposite First Trust and American Century positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust 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 First Trust TCW and American Century Investments 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.