Correlation Between Income Fund and Capital Income
Can any of the company-specific risk be diversified away by investing in both Income Fund and Capital Income 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 Income Fund and Capital Income into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Income Fund Of and Capital Income Builder, you can compare the effects of market volatilities on Income Fund and Capital Income 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 Income Fund with a short position of Capital Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Income Fund and Capital Income.
Diversification Opportunities for Income Fund and Capital Income
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Income and Capital is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Income Fund Of and Capital Income Builder in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Income Builder and Income Fund 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 Income Fund Of are associated (or correlated) with Capital Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Income Builder has no effect on the direction of Income Fund i.e., Income Fund and Capital Income go up and down completely randomly.
Pair Corralation between Income Fund and Capital Income
Assuming the 90 days horizon Income Fund is expected to generate 1.03 times less return on investment than Capital Income. But when comparing it to its historical volatility, Income Fund Of is 1.03 times less risky than Capital Income. It trades about 0.18 of its potential returns per unit of risk. Capital Income Builder is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 5,739 in Capital Income Builder on August 25, 2024 and sell it today you would earn a total of 1,529 from holding Capital Income Builder or generate 26.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.63% |
| Values | Daily Returns |
Income Fund Of vs. Capital Income Builder
Performance |
| Timeline |
| Income Fund |
| Capital Income Builder |
Income Fund and Capital Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Income Fund and Capital Income
The main advantage of trading using opposite Income Fund and Capital Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Income Fund position performs unexpectedly, Capital Income 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 Income will offset losses from the drop in Capital Income's long position.| Income Fund vs. Capital Income Builder | Income Fund vs. Capital World Growth | Income Fund vs. American Balanced | Income Fund vs. American Funds Fundamental |
| Capital Income vs. Small Cap Stock | Capital Income vs. Archer Balanced Fund | Capital Income vs. Omni Small Cap Value | Capital Income vs. Qs Global Equity |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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