Correlation Between American Century and Retail Opportunity

Can any of the company-specific risk be diversified away by investing in both American Century and Retail Opportunity 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 Retail Opportunity into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American Century One and Retail Opportunity Investments, you can compare the effects of market volatilities on American Century and Retail Opportunity 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 Retail Opportunity. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Century and Retail Opportunity.

Diversification Opportunities for American Century and Retail Opportunity

0.3

Correlation Coefficient

American Century  Retail Opportunity

Weak diversification

The 3 months correlation between American and Retail is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding American Century One and Retail Opportunity Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Retail Opportunity 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 One are associated (or correlated) with Retail Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Retail Opportunity has no effect on the direction of American Century i.e., American Century and Retail Opportunity go up and down completely randomly.

Pair Corralation between American Century and Retail Opportunity

Assuming the 90 days horizon American Century One is expected to generate 0.48 times more return on investment than Retail Opportunity. However, American Century One is 2.06 times less risky than Retail Opportunity. It trades about 0.06 of its potential returns per unit of risk. Retail Opportunity Investments is currently generating about -0.03 per unit of risk. If you would invest  1,036  in American Century One on March 13, 2024 and sell it today you would earn a total of  23.00  from holding American Century One or generate 2.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

American Century One  vs.  Retail Opportunity Investments

American Century One

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Century One are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, American Century is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Retail Opportunity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Retail Opportunity Investments has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, Retail Opportunity is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with American Century and Retail Opportunity

The main advantage of trading using opposite American Century and Retail Opportunity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Century position performs unexpectedly, Retail Opportunity 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 Retail Opportunity will offset losses from the drop in Retail Opportunity's long position.

The idea behind American Century One and Retail Opportunity Investments 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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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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.