Correlation Between Strategic Allocation and American Century
Can any of the company-specific risk be diversified away by investing in both Strategic Allocation 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 Strategic Allocation and American Century into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Strategic Allocation Servative and American Century Ultra, you can compare the effects of market volatilities on Strategic Allocation 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 Strategic Allocation with a short position of American Century. Check out your portfolio center. Please also check ongoing floating volatility patterns of Strategic Allocation and American Century.
Diversification Opportunities for Strategic Allocation and American Century
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Strategic and American is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Strategic Allocation Servative 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 Strategic Allocation 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 Strategic Allocation Servative 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 Strategic Allocation i.e., Strategic Allocation and American Century go up and down completely randomly.
Pair Corralation between Strategic Allocation and American Century
Assuming the 90 days horizon Strategic Allocation is expected to generate 2.23 times less return on investment than American Century. But when comparing it to its historical volatility, Strategic Allocation Servative is 2.67 times less risky than American Century. It trades about 0.11 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 |
Strategic Allocation Servative vs. American Century Ultra
Performance |
| Timeline |
| Strategic Allocation |
| American Century Ultra |
Strategic Allocation and American Century Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Strategic Allocation and American Century
The main advantage of trading using opposite Strategic Allocation and American Century positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Strategic Allocation 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 Strategic Allocation Servative and American Century Ultra 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 Transaction History module to view history of all your transactions and understand their impact on performance.
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