Correlation Between American Century and Small Company

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

By analyzing existing cross correlation between American Century Real and Small Pany Fund, you can compare the effects of market volatilities on American Century and Small Company 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 Small Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Century and Small Company.

Diversification Opportunities for American Century and Small Company

0.07

Correlation Coefficient

American Century  Small Company

Significant diversification

The 3 months correlation between American and Small is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding American Century Real and Small Pany Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Pany Fund 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 Real are associated (or correlated) with Small Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Pany Fund has no effect on the direction of American Century i.e., American Century and Small Company go up and down completely randomly.

Pair Corralation between American Century and Small Company

Assuming the 90 days horizon American Century Real is expected to generate 0.92 times more return on investment than Small Company. However, American Century Real is 1.08 times less risky than Small Company. It trades about 0.01 of its potential returns per unit of risk. Small Pany Fund is currently generating about -0.11 per unit of risk. If you would invest  2,630  in American Century Real on December 22, 2024 and sell it today you would earn a total of  4.00  from holding American Century Real or generate 0.15% return on investment over 90 days.

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

American Century Real  vs.  Small Pany Fund

American Century Real

Risk-Adjusted Performance

Weak

Over the last 90 days American Century Real has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, American Century is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Small Pany Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Pany Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with American Century and Small Company

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

The idea behind American Century Real and Small Pany Fund 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.