Correlation Between American Century and DOW

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

Diversification Opportunities for American Century and DOW

0.94
  Correlation Coefficient

Almost no diversification

The 3 months correlation between American and DOW is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding American Century Real and DOW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DOW 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 Real are associated (or correlated) with DOW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DOW has no effect on the direction of American Century i.e., American Century and DOW go up and down completely randomly.
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Pair Corralation between American Century and DOW

Assuming the 90 days horizon American Century Real is expected to generate 1.21 times more return on investment than DOW. However, American Century is 1.21 times more volatile than DOW. It trades about 0.05 of its potential returns per unit of risk. DOW is currently generating about 0.04 per unit of risk. If you would invest  2,235  in American Century Real on May 11, 2022 and sell it today you would earn a total of  722.00  from holding American Century Real or generate 32.3% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

American Century Real  vs.  DOW

 Performance (%) 
       Timeline  

American Century and DOW Volatility Contrast

   Predicted Return Density   
       Returns  

American Century Real

Pair trading matchups for American Century

Blink Charging vs. American Century
Amazon vs. American Century
Ultralife Corp vs. American Century
Microsoft Corp vs. American Century
Tesla vs. American Century
Enbridge vs. American Century
Alphabet vs. American Century
Hyliion Hldg vs. American Century
Salesforce vs. American Century
Otp Bank vs. American Century
Exxon vs. American Century
Canadian National 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 Real.

DOW

Pair trading matchups for DOW

Enbridge vs. DOW
Ubiquiti Networks vs. DOW
Shopify vs. DOW
Tencent Holdings vs. DOW
Exxon vs. DOW
Coca Cola vs. DOW
Ultralife Corp vs. DOW
Amazon vs. DOW
Canadian National vs. DOW
Alphabet vs. DOW
Tesla vs. DOW
Otp Bank vs. DOW
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 DOW 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. DOW'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, DOW'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 DOW.

Pair Trading with American Century and DOW

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

American Century Real

Pair trading matchups for American Century

Hyliion Hldg vs. American Century
Tencent Holdings vs. American Century
Agnico-Eagle Mines vs. American Century
Shopify vs. American Century
Enbridge vs. American Century
Canadian National vs. American Century
Otp Bank vs. American Century
Microsoft Corp vs. American Century
Exxon vs. American Century
Salesforce vs. American Century
Tesla vs. American Century
Ultralife Corp 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 Real.
The idea behind American Century Real and DOW 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.

DOW

Pair trading matchups for DOW

Tencent Holdings vs. DOW
Agnico-Eagle Mines vs. DOW
Amazon vs. DOW
Hyliion Hldg vs. DOW
Ubiquiti Networks vs. DOW
Alphabet vs. DOW
Canadian National vs. DOW
Tesla vs. DOW
Exxon vs. DOW
Microsoft Corp vs. DOW
Enbridge vs. DOW
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 DOW 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. DOW'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, DOW'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 DOW.
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.

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