Correlation Between American Century and IQ 500

Can any of the company-specific risk be diversified away by investing in both American Century and IQ 500 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 IQ 500 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 IQ 500 International, you can compare the effects of market volatilities on American Century and IQ 500 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 IQ 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Century and IQ 500.

Diversification Opportunities for American Century and IQ 500

0.36

Correlation Coefficient

American Century  IQ 500

Weak diversification

The 3 months correlation between American and IQIN is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding American Century Quality and IQ 500 International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IQ 500 International 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 IQ 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IQ 500 International has no effect on the direction of American Century i.e., American Century and IQ 500 go up and down completely randomly.

Pair Corralation between American Century and IQ 500

Given the investment horizon of 90 days American Century Quality is expected to generate 0.89 times more return on investment than IQ 500. However, American Century Quality is 1.13 times less risky than IQ 500. It trades about -0.01 of its potential returns per unit of risk. IQ 500 International is currently generating about -0.11 per unit of risk. If you would invest  5,039  in American Century Quality on September 13, 2024 and sell it today you would lose (19.00) from holding American Century Quality or give up 0.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	79.37%
Values	Daily Returns

American Century Quality  vs.  IQ 500 International

American Century Quality

Risk-Adjusted Performance

0 of 100

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 comparatively stable basic indicators, American Century is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

IQ 500 International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IQ 500 International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, IQ 500 is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with American Century and IQ 500

The main advantage of trading using opposite American Century and IQ 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Century position performs unexpectedly, IQ 500 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 IQ 500 will offset losses from the drop in IQ 500's long position.

The idea behind American Century Quality and IQ 500 International 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.