Correlation Between Mid Cap and American Century

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Can any of the company-specific risk be diversified away by investing in both Mid Cap 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 Mid Cap and American Century into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Mid Cap Value and American Century Heritage, you can compare the effects of market volatilities on Mid Cap 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 Mid Cap with a short position of American Century. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and American Century.

Diversification Opportunities for Mid Cap and American Century

0.9
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Mid and American is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Value and American Century Heritage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Century Heritage and Mid Cap 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 Mid Cap Value 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 Heritage has no effect on the direction of Mid Cap i.e., Mid Cap and American Century go up and down completely randomly.

Pair Corralation between Mid Cap and American Century

Assuming the 90 days horizon Mid Cap Value is expected to under-perform the American Century. But the mutual fund apears to be less risky and, when comparing its historical volatility, Mid Cap Value is 1.59 times less risky than American Century. The mutual fund trades about -0.04 of its potential returns per unit of risk. The American Century Heritage is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  3,326  in American Century Heritage on September 10, 2024 and sell it today you would earn a total of  193.00  from holding American Century Heritage or generate 5.8% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy95.24%
ValuesDaily Returns

Mid Cap Value  vs.  American Century Heritage

 Performance 
       Timeline  
Mid Cap Value 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Value are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Mid Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
American Century Heritage 

Risk-Adjusted Performance

29 of 100

 
Weak
 
Strong
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in American Century Heritage are ranked lower than 29 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, American Century showed solid returns over the last few months and may actually be approaching a breakup point.

Mid Cap and American Century Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Mid Cap and American Century

The main advantage of trading using opposite Mid Cap and American Century positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mid Cap 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 Mid Cap Value and American Century Heritage 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.
Check out your portfolio center.
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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.

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