Correlation Between American Century and VCRM

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

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

Diversification Opportunities for American Century and VCRM

0.88

Correlation Coefficient

American Century  VCRM

Very poor diversification

The 3 months correlation between American and VCRM is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding American Century Diversified and VCRM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VCRM 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 Diversified are associated (or correlated) with VCRM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VCRM has no effect on the direction of American Century i.e., American Century and VCRM go up and down completely randomly.

Pair Corralation between American Century and VCRM

Given the investment horizon of 90 days American Century Diversified is expected to under-perform the VCRM. In addition to that, American Century is 1.1 times more volatile than VCRM. It trades about -0.01 of its total potential returns per unit of risk. VCRM is currently generating about 0.07 per unit of volatility. If you would invest  7,400  in VCRM on December 20, 2024 and sell it today you would earn a total of  67.00  from holding VCRM or generate 0.91% return on investment over 90 days.

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

American Century Diversified  vs.  VCRM

American Century Div

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Century Diversified has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, American Century is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

VCRM

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in VCRM are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, VCRM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with American Century and VCRM

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

The idea behind American Century Diversified and VCRM 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.