Correlation Between Capital Income and American Funds
Can any of the company-specific risk be diversified away by investing in both Capital Income and American Funds 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 Capital Income and American Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Capital Income Builder and American Funds New, you can compare the effects of market volatilities on Capital Income and American Funds 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 Capital Income with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Income and American Funds.
Diversification Opportunities for Capital Income and American Funds
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Capital and American is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Capital Income Builder and American Funds New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds New and Capital 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 Capital Income Builder are associated (or correlated) with American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds New has no effect on the direction of Capital Income i.e., Capital Income and American Funds go up and down completely randomly.
Pair Corralation between Capital Income and American Funds
Assuming the 90 days horizon Capital Income is expected to generate 1.11 times less return on investment than American Funds. But when comparing it to its historical volatility, Capital Income Builder is 1.47 times less risky than American Funds. It trades about 0.08 of its potential returns per unit of risk. American Funds New is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 6,568 in American Funds New on September 1, 2024 and sell it today you would earn a total of 1,530 from holding American Funds New or generate 23.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Capital Income Builder vs. American Funds New
Performance |
| Timeline |
| Capital Income Builder |
| American Funds New |
Capital Income and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Capital Income and American Funds
The main advantage of trading using opposite Capital Income and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital Income position performs unexpectedly, American Funds 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 American Funds will offset losses from the drop in American Funds' long position.| Capital Income vs. Commonwealth Real Estate | Capital Income vs. Prudential Real Estate | Capital Income vs. Virtus Real Estate | Capital Income vs. Fidelity Real Estate |
| American Funds vs. Smallcap World Fund | American Funds vs. Capital World Growth | American Funds vs. American Funds Fundamental | American Funds vs. Capital Income Builder |
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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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