Correlation Between American Century and Small Cap
Can any of the company-specific risk be diversified away by investing in both American Century and Small Cap 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 Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Century Small and Small Cap Growth, you can compare the effects of market volatilities on American Century and Small Cap 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 Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Century and Small Cap.
Diversification Opportunities for American Century and Small Cap
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between American and Small is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding American Century Small and Small Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Growth 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 Small are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Growth has no effect on the direction of American Century i.e., American Century and Small Cap go up and down completely randomly.
Pair Corralation between American Century and Small Cap
Assuming the 90 days horizon American Century Small is expected to generate 1.0 times more return on investment than Small Cap. However, American Century is 1.0 times more volatile than Small Cap Growth. It trades about 0.11 of its potential returns per unit of risk. Small Cap Growth is currently generating about 0.1 per unit of risk. If you would invest 1,829 in American Century Small on August 29, 2024 and sell it today you would earn a total of 775.00 from holding American Century Small or generate 42.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Century Small vs. Small Cap Growth
Performance |
| Timeline |
| American Century Small |
| Small Cap Growth |
American Century and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Century and Small Cap
The main advantage of trading using opposite American Century and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Century position performs unexpectedly, Small Cap 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 Small Cap will offset losses from the drop in Small Cap's long position.| American Century vs. T Rowe Price | American Century vs. Pace Large Value | American Century vs. Dodge Cox Stock | American Century vs. Enhanced Large Pany |
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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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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