Correlation Between ETRACS 2xMonthly and American Century

Can any of the company-specific risk be diversified away by investing in both ETRACS 2xMonthly 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 ETRACS 2xMonthly and American Century into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ETRACS 2xMonthly Pay and American Century STOXX, you can compare the effects of market volatilities on ETRACS 2xMonthly 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 ETRACS 2xMonthly with a short position of American Century. Check out your portfolio center. Please also check ongoing floating volatility patterns of ETRACS 2xMonthly and American Century.

Diversification Opportunities for ETRACS 2xMonthly and American Century

0.3

Correlation Coefficient

ETRACS 2xMonthly  American Century

Weak diversification

The 3 months correlation between ETRACS and American is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding ETRACS 2xMonthly Pay and American Century STOXX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Century STOXX and ETRACS 2xMonthly 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 ETRACS 2xMonthly Pay 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 STOXX has no effect on the direction of ETRACS 2xMonthly i.e., ETRACS 2xMonthly and American Century go up and down completely randomly.

Pair Corralation between ETRACS 2xMonthly and American Century

Given the investment horizon of 90 days ETRACS 2xMonthly Pay is expected to under-perform the American Century. In addition to that, ETRACS 2xMonthly is 2.04 times more volatile than American Century STOXX. It trades about -0.1 of its total potential returns per unit of risk. American Century STOXX is currently generating about 0.01 per unit of volatility. If you would invest  6,199  in American Century STOXX on October 20, 2024 and sell it today you would earn a total of  22.50  from holding American Century STOXX or generate 0.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

ETRACS 2xMonthly Pay  vs.  American Century STOXX

ETRACS 2xMonthly Pay

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ETRACS 2xMonthly Pay has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Etf's technical and fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the ETF venture institutional investors.

American Century STOXX

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Century STOXX has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable essential indicators, American Century is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with ETRACS 2xMonthly and American Century

The main advantage of trading using opposite ETRACS 2xMonthly and American Century positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ETRACS 2xMonthly 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 ETRACS 2xMonthly Pay and American Century STOXX 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.