Correlation Between American Balanced and Capital Income
Can any of the company-specific risk be diversified away by investing in both American Balanced 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 American Balanced and Capital Income into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Balanced Fund and Capital Income Builder, you can compare the effects of market volatilities on American Balanced 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 American Balanced with a short position of Capital Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Balanced and Capital Income.
Diversification Opportunities for American Balanced and Capital Income
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between American and Capital is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced Fund 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 American Balanced 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 Balanced Fund 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 American Balanced i.e., American Balanced and Capital Income go up and down completely randomly.
Pair Corralation between American Balanced and Capital Income
Assuming the 90 days horizon American Balanced is expected to generate 1.06 times less return on investment than Capital Income. In addition to that, American Balanced is 1.18 times more volatile than Capital Income Builder. It trades about 0.07 of its total potential returns per unit of risk. Capital Income Builder is currently generating about 0.08 per unit of volatility. If you would invest 6,379 in Capital Income Builder on November 3, 2024 and sell it today you would earn a total of 720.00 from holding Capital Income Builder or generate 11.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Balanced Fund vs. Capital Income Builder
Performance |
| Timeline |
| American Balanced |
| Capital Income Builder |
American Balanced and Capital Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Balanced and Capital Income
The main advantage of trading using opposite American Balanced and Capital Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Balanced 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.| American Balanced vs. Income Fund Of | American Balanced vs. Capital Income Builder | American Balanced vs. Capital World Growth | American Balanced vs. Growth Fund Of |
| Capital Income vs. Income Fund Of | Capital Income vs. Capital World Growth | Capital Income vs. American Balanced Fund | Capital Income vs. Growth Fund Of |
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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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