Correlation Between Short-term Government and American Century
Can any of the company-specific risk be diversified away by investing in both Short-term Government 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 Government 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 Small, you can compare the effects of market volatilities on Short-term Government 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 Government with a short position of American Century. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short-term Government and American Century.
Diversification Opportunities for Short-term Government and American Century
-0.49 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Short-term and American is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Short Term Government Fund and American Century Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Century Small and Short-term Government 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 Small has no effect on the direction of Short-term Government i.e., Short-term Government and American Century go up and down completely randomly.
Pair Corralation between Short-term Government and American Century
Assuming the 90 days horizon Short-term Government is expected to generate 6.37 times less return on investment than American Century. But when comparing it to its historical volatility, Short Term Government Fund is 8.26 times less risky than American Century. It trades about 0.09 of its potential returns per unit of risk. American Century Small is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 2,008 in American Century Small on August 26, 2024 and sell it today you would earn a total of 568.00 from holding American Century Small or generate 28.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Short Term Government Fund vs. American Century Small
Performance |
| Timeline |
| Short Term Government |
| American Century Small |
Short-term Government and American Century Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Short-term Government and American Century
The main advantage of trading using opposite Short-term Government and American Century positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short-term Government 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 Small 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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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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