Correlation Between Health Care and American Century

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

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

Diversification Opportunities for Health Care and American Century

-0.47

Correlation Coefficient

Health Care  American Century

Very good diversification

The 3 months correlation between HEALTH and American is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Fund and American Century High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Century High and Health Care 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 Health Care Fund 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 High has no effect on the direction of Health Care i.e., Health Care and American Century go up and down completely randomly.

Pair Corralation between Health Care and American Century

Assuming the 90 days horizon Health Care is expected to generate 1.09 times less return on investment than American Century. In addition to that, Health Care is 6.14 times more volatile than American Century High. It trades about 0.03 of its total potential returns per unit of risk. American Century High is currently generating about 0.23 per unit of volatility. If you would invest  868.00  in American Century High on September 2, 2024 and sell it today you would earn a total of  6.00  from holding American Century High or generate 0.69% return on investment over 90 days.

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

Health Care Fund  vs.  American Century High

Health Care Fund

Risk-Adjusted Performance

0 of 100

Very Weak

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

American Century High

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Century High are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, American Century is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Health Care and American Century

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

Check out your portfolio center.

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.