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 Exchange Traded, 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

0.99

Correlation Coefficient

American Century  First Trust

No risk reduction

The 3 months correlation between American and First is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding American Century Quality and First Trust Exchange Traded in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Exchange 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 Exchange 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 generate 0.82 times more return on investment than First Trust. However, American Century Quality is 1.22 times less risky than First Trust. It trades about -0.07 of its potential returns per unit of risk. First Trust Exchange Traded is currently generating about -0.09 per unit of risk. If you would invest  10,025  in American Century Quality on December 29, 2024 and sell it today you would lose (679.00) from holding American Century Quality or give up 6.77% 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 Exchange Traded

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 latest weak performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

First Trust Exchange

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Exchange Traded has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Etf's essential indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the Exchange Traded Fund stockholders.

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 Exchange Traded 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.