Correlation Between SPDR SP and American Century

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

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

Diversification Opportunities for SPDR SP and American Century

0.81

Correlation Coefficient

SPDR SP  American Century

Very poor diversification

The 3 months correlation between SPDR and American is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 and American Century Low in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Century Low and SPDR SP 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 SPDR 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 Low has no effect on the direction of SPDR SP i.e., SPDR SP and American Century go up and down completely randomly.

Pair Corralation between SPDR SP and American Century

Considering the 90-day investment horizon SPDR SP 500 is expected to under-perform the American Century. In addition to that, SPDR SP is 1.32 times more volatile than American Century Low. It trades about -0.05 of its total potential returns per unit of risk. American Century Low is currently generating about 0.01 per unit of volatility. If you would invest  5,449  in American Century Low on December 28, 2024 and sell it today you would earn a total of  11.00  from holding American Century Low or generate 0.2% return on investment over 90 days.

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

SPDR SP 500  vs.  American Century Low

SPDR SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, SPDR SP is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Century Low

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Century Low has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, American Century is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with SPDR SP and American Century

The main advantage of trading using opposite SPDR SP and American Century positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP 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 SPDR SP 500 and American Century Low 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 Stocks Directory module to find actively traded stocks across global markets.