Correlation Between American Century and First Trust

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

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

Diversification Opportunities for American Century and First Trust

0.97

Correlation Coefficient

American Century  First Trust

Almost no diversification

The 3 months correlation between American and First is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding American Century Quality and First Trust SSI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust SSI 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 Quality are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust SSI has no effect on the direction of American Century i.e., American Century and First Trust go up and down completely randomly.

Pair Corralation between American Century and First Trust

Given the investment horizon of 90 days American Century Quality is expected to under-perform the First Trust. In addition to that, American Century is 1.66 times more volatile than First Trust SSI. It trades about -0.04 of its total potential returns per unit of risk. First Trust SSI is currently generating about -0.04 per unit of volatility. If you would invest  3,710  in First Trust SSI on December 26, 2024 and sell it today you would lose (84.00) from holding First Trust SSI or give up 2.26% of portfolio value over 90 days.

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

American Century Quality  vs.  First Trust SSI

American Century Quality

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Century Quality has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, American Century is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

First Trust SSI

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust SSI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, First Trust is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with American Century and First Trust

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

The idea behind American Century Quality and First Trust SSI 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.