Correlation Between High Income and American Century

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

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

Diversification Opportunities for High Income and American Century

0.83

Correlation Coefficient

High Income  American Century

Very poor diversification

The 3 months correlation between High and American is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding High Income Fund and American Century One in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Century One and High Income 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 High Income 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 One has no effect on the direction of High Income i.e., High Income and American Century go up and down completely randomly.

Pair Corralation between High Income and American Century

Assuming the 90 days horizon High Income is expected to generate 1.37 times less return on investment than American Century. But when comparing it to its historical volatility, High Income Fund is 1.94 times less risky than American Century. It trades about 0.17 of its potential returns per unit of risk. American Century One is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  886.00  in American Century One on September 12, 2024 and sell it today you would earn a total of  194.00  from holding American Century One or generate 21.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.7%
Values	Daily Returns

High Income Fund  vs.  American Century One

High Income Fund

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in High Income Fund are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, High Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Century One

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Century One are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward-looking signals, American Century is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with High Income and American Century

The main advantage of trading using opposite High Income and American Century positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if High Income 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 High Income Fund and American Century One 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.