Correlation Between Vanguard Dividend and American Century

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

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

Diversification Opportunities for Vanguard Dividend and American Century

0.97

Correlation Coefficient

Vanguard Dividend  American Century

Almost no diversification

The 3 months correlation between Vanguard and American is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Dividend Appreciation 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 Vanguard Dividend 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 Vanguard Dividend Appreciation 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 Vanguard Dividend i.e., Vanguard Dividend and American Century go up and down completely randomly.

Pair Corralation between Vanguard Dividend and American Century

Considering the 90-day investment horizon Vanguard Dividend is expected to generate 1.08 times less return on investment than American Century. In addition to that, Vanguard Dividend is 1.08 times more volatile than American Century Low. It trades about 0.15 of its total potential returns per unit of risk. American Century Low is currently generating about 0.18 per unit of volatility. If you would invest  5,318  in American Century Low on September 1, 2024 and sell it today you would earn a total of  364.00  from holding American Century Low or generate 6.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Vanguard Dividend Appreciation  vs.  American Century Low

Vanguard Dividend

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Dividend Appreciation are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward indicators, Vanguard Dividend is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

American Century Low

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Century Low are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, American Century may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Vanguard Dividend and American Century

The main advantage of trading using opposite Vanguard Dividend and American Century positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Dividend 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 Vanguard Dividend Appreciation 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.