Correlation Between American Funds and American Century

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

By analyzing existing cross correlation between American Funds 2065 and American Century One, you can compare the effects of market volatilities on American Funds 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 American Funds with a short position of American Century. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and American Century.

Diversification Opportunities for American Funds and American Century

0.92

Correlation Coefficient

American Funds  American Century

Almost no diversification

The 3 months correlation between American and American is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding American Funds 2065 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 American Funds 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 Funds 2065 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 American Funds i.e., American Funds and American Century go up and down completely randomly.

Pair Corralation between American Funds and American Century

Assuming the 90 days horizon American Funds 2065 is expected to under-perform the American Century. In addition to that, American Funds is 1.04 times more volatile than American Century One. It trades about -0.02 of its total potential returns per unit of risk. American Century One is currently generating about -0.02 per unit of volatility. If you would invest  1,145  in American Century One on November 29, 2024 and sell it today you would lose (12.00) from holding American Century One or give up 1.05% of portfolio value over 90 days.

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

American Funds 2065  vs.  American Century One

American Funds 2065

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Funds 2065 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, American Funds 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

Very Weak

Over the last 90 days American Century One has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, 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 American Funds and American Century

The main advantage of trading using opposite American Funds and American Century positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds 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 American Funds 2065 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.

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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.