Correlation Between American Century and Income Fund

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Can any of the company-specific risk be diversified away by investing in both American Century and Income Fund 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 Income Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Century Strategic and The Income Fund, you can compare the effects of market volatilities on American Century and Income Fund 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 Income Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Century and Income Fund.

Diversification Opportunities for American Century and Income Fund

0.7
  Correlation Coefficient

Poor diversification

The 3 months correlation between American and Income is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding American Century Strategic and The Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Income Fund 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 Strategic are associated (or correlated) with Income Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Income Fund has no effect on the direction of American Century i.e., American Century and Income Fund go up and down completely randomly.

Pair Corralation between American Century and Income Fund

Assuming the 90 days horizon American Century Strategic is expected to under-perform the Income Fund. In addition to that, American Century is 1.4 times more volatile than The Income Fund. It trades about -0.15 of its total potential returns per unit of risk. The Income Fund is currently generating about -0.15 per unit of volatility. If you would invest  2,515  in The Income Fund on April 7, 2022 and sell it today you would lose (222.00)  from holding The Income Fund or give up 8.83% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

American Century Strategic  vs.  The Income Fund

 Performance (%) 
      Timeline 
American Century Str 
American Performance
0 of 100
Over the last 90 days American Century Strategic has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.
Income Fund 
Income Performance
0 of 100
Over the last 90 days The Income Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest unfluctuating performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Income Price Channel

American Century and Income Fund Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with American Century and Income Fund

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

American Century Strategic

Pair trading matchups for American Century

ATT vs. American Century
GM vs. American Century
Twitter vs. American Century
Ezcorp vs. American Century
Occidental Petroleum vs. American Century
Eastgroup Properties vs. American Century
Interactive Brokers vs. American Century
Purecycle Technologies vs. American Century
Greenlight Cap vs. American Century
Halliburton vs. American Century
Albemarle Corp vs. American Century
Ollies Bargain vs. American Century
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against American Century as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. American Century's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, American Century's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to American Century Strategic.
The idea behind American Century Strategic and The Income Fund 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.

The Income Fund

Pair trading matchups for Income 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.

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