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 Exchange Traded and American Century Quality, 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

0.97

Correlation Coefficient

First Trust  American Century

Almost no diversification

The 3 months correlation between First and American is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Exchange Traded and American Century Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Century Quality 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 Exchange Traded 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 Quality 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 is expected to generate 1.11 times less return on investment than American Century. In addition to that, First Trust is 1.23 times more volatile than American Century Quality. It trades about 0.1 of its total potential returns per unit of risk. American Century Quality is currently generating about 0.14 per unit of volatility. If you would invest  6,595  in American Century Quality on September 1, 2024 and sell it today you would earn a total of  3,750  from holding American Century Quality or generate 56.86% return on investment over 90 days.

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

First Trust Exchange Traded  vs.  American Century Quality

First Trust Exchange

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Exchange Traded are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating essential indicators, First Trust reported solid returns over the last few months and may actually be approaching a breakup point.

American Century Quality

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Century Quality are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, American Century displayed solid returns over the last few months and may actually be approaching a breakup point.

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 Exchange Traded and American Century Quality 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.