Correlation Between ProShares and American Century

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

By analyzing existing cross correlation between ProShares SP 500 and American Century Quality, you can compare the effects of market volatilities on ProShares 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 ProShares with a short position of American Century. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares and American Century.

Diversification Opportunities for ProShares and American Century

0.97

Correlation Coefficient

ProShares  American Century

Almost no diversification

The 3 months correlation between ProShares and American is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding ProShares SP 500 and American Century Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Century Quality and ProShares 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 ProShares SP 500 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 Quality has no effect on the direction of ProShares i.e., ProShares and American Century go up and down completely randomly.

Pair Corralation between ProShares and American Century

Given the investment horizon of 90 days ProShares is expected to generate 1.2 times less return on investment than American Century. But when comparing it to its historical volatility, ProShares SP 500 is 1.25 times less risky than American Century. It trades about 0.13 of its potential returns per unit of risk. American Century Quality is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  7,276  in American Century Quality on October 3, 2024 and sell it today you would earn a total of  2,694  from holding American Century Quality or generate 37.03% return on investment over 90 days.

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

ProShares SP 500  vs.  American Century Quality

ProShares SP 500

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares SP 500 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, ProShares is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

American Century Quality

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Century Quality are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, American Century may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with ProShares and American Century

The main advantage of trading using opposite ProShares and American Century positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares 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 ProShares SP 500 and American Century Quality 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.