Correlation Between American High-income and Capital World
Can any of the company-specific risk be diversified away by investing in both American High-income and Capital World 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 High-income and Capital World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American High Income Municipal and Capital World Bond, you can compare the effects of market volatilities on American High-income and Capital World 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 High-income with a short position of Capital World. Check out your portfolio center. Please also check ongoing floating volatility patterns of American High-income and Capital World.
Diversification Opportunities for American High-income and Capital World
0.47 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between American and Capital is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding American High Income Municipal and Capital World Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital World Bond and American High-income 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 High Income Municipal are associated (or correlated) with Capital World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital World Bond has no effect on the direction of American High-income i.e., American High-income and Capital World go up and down completely randomly.
Pair Corralation between American High-income and Capital World
Assuming the 90 days horizon American High Income Municipal is expected to generate 0.62 times more return on investment than Capital World. However, American High Income Municipal is 1.61 times less risky than Capital World. It trades about 0.1 of its potential returns per unit of risk. Capital World Bond is currently generating about 0.01 per unit of risk. If you would invest 1,358 in American High Income Municipal on August 27, 2024 and sell it today you would earn a total of 186.00 from holding American High Income Municipal or generate 13.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
American High Income Municipal vs. Capital World Bond
Performance |
| Timeline |
| American High Income |
| Capital World Bond |
American High-income and Capital World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American High-income and Capital World
The main advantage of trading using opposite American High-income and Capital World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American High-income position performs unexpectedly, Capital World 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 Capital World will offset losses from the drop in Capital World's long position.| American High-income vs. Tax Exempt Bond | American High-income vs. American High Income Municipal | American High-income vs. American High Income | American High-income vs. Bond Fund Of |
| Capital World vs. Income Fund Of | Capital World vs. New World Fund | Capital World vs. American Mutual Fund | Capital World vs. American Mutual 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 the Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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