Correlation Between American Funds and Capital World
Can any of the company-specific risk be diversified away by investing in both American Funds 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 Funds 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 Funds Strategic and Capital World Bond, you can compare the effects of market volatilities on American Funds 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 Funds with a short position of Capital World. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Capital World.
Diversification Opportunities for American Funds and Capital World
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between American and Capital is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Strategic 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 Funds 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 Funds Strategic 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 Funds i.e., American Funds and Capital World go up and down completely randomly.
Pair Corralation between American Funds and Capital World
Assuming the 90 days horizon American Funds Strategic is expected to generate 0.94 times more return on investment than Capital World. However, American Funds Strategic is 1.06 times less risky than Capital World. It trades about -0.09 of its potential returns per unit of risk. Capital World Bond is currently generating about -0.14 per unit of risk. If you would invest 934.00 in American Funds Strategic on August 28, 2024 and sell it today you would lose (18.00) from holding American Funds Strategic or give up 1.93% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds Strategic vs. Capital World Bond
Performance |
| Timeline |
| American Funds Strategic |
| Capital World Bond |
American Funds and Capital World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Capital World
The main advantage of trading using opposite American Funds and Capital World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds 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 Funds vs. American Funds Inflation | American Funds vs. Bond Fund Of | American Funds vs. Us Government Securities | American Funds vs. Baron Global Advantage |
| 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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