Correlation Between Capital Income and Small Cap
Can any of the company-specific risk be diversified away by investing in both Capital Income and Small Cap 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 Small Cap 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 Small Cap Core, you can compare the effects of market volatilities on Capital Income and Small Cap 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 Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Income and Small Cap.
Diversification Opportunities for Capital Income and Small Cap
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Capital and Small is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Capital Income Builder and Small Cap Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Core 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 Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Core has no effect on the direction of Capital Income i.e., Capital Income and Small Cap go up and down completely randomly.
Pair Corralation between Capital Income and Small Cap
Assuming the 90 days horizon Capital Income Builder is expected to generate 0.36 times more return on investment than Small Cap. However, Capital Income Builder is 2.79 times less risky than Small Cap. It trades about 0.08 of its potential returns per unit of risk. Small Cap Core is currently generating about 0.01 per unit of risk. If you would invest 6,375 in Capital Income Builder on November 3, 2024 and sell it today you would earn a total of 724.00 from holding Capital Income Builder or generate 11.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Capital Income Builder vs. Small Cap Core
Performance |
| Timeline |
| Capital Income Builder |
| Small Cap Core |
Capital Income and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Capital Income and Small Cap
The main advantage of trading using opposite Capital Income and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital Income position performs unexpectedly, Small Cap 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 Small Cap will offset losses from the drop in Small Cap's long position.| Capital Income vs. Blackrock Financial Institutions | Capital Income vs. Fidelity Advisor Financial | Capital Income vs. Blackstone Secured Lending | Capital Income vs. 1919 Financial Services |
| Small Cap vs. Upright Growth Income | Small Cap vs. The Hartford Growth | Small Cap vs. Rational Defensive Growth | Small Cap vs. Pnc International Growth |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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