Correlation Between Mid Cap and American Century
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 Ultra, 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
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Mid and American is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Value and American Century Ultra in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Century Ultra 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 Ultra 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 is expected to generate 2.0 times less return on investment than American Century. But when comparing it to its historical volatility, Mid Cap Value is 1.53 times less risky than American Century. It trades about 0.07 of its potential returns per unit of risk. American Century Ultra is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 7,603 in American Century Ultra on August 31, 2024 and sell it today you would earn a total of 3,050 from holding American Century Ultra or generate 40.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.73% |
| Values | Daily Returns |
Mid Cap Value vs. American Century Ultra
Performance |
| Timeline |
| Mid Cap Value |
| American Century Ultra |
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.| Mid Cap vs. Western Asset Diversified | Mid Cap vs. Tax Managed Mid Small | Mid Cap vs. Principal Lifetime Hybrid |
| American Century vs. Energy Basic Materials | American Century vs. Goehring Rozencwajg Resources | American Century vs. Icon Natural Resources | American Century vs. Energy Services Fund |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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