Correlation Between Short Term and American Century

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

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

Diversification Opportunities for Short Term and American Century

-0.34

Correlation Coefficient

Short Term  American Century

Very good diversification

The 3 months correlation between Short and American is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Short Term Government Fund and American Century One in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Century One and Short Term 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 Short Term Government 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 One has no effect on the direction of Short Term i.e., Short Term and American Century go up and down completely randomly.

Pair Corralation between Short Term and American Century

Assuming the 90 days horizon Short Term is expected to generate 4.17 times less return on investment than American Century. But when comparing it to its historical volatility, Short Term Government Fund is 3.56 times less risky than American Century. It trades about 0.11 of its potential returns per unit of risk. American Century One is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  886.00  in American Century One on September 12, 2024 and sell it today you would earn a total of  194.00  from holding American Century One or generate 21.9% return on investment over 90 days.

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

Short Term Government Fund  vs.  American Century One

Short Term Government

Risk-Adjusted Performance

0 of 100

Very Weak

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

American Century One

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Century One are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward-looking signals, American Century is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Short Term and American Century

The main advantage of trading using opposite Short Term and American Century positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short Term 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 Short Term Government Fund and American Century One 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.