Correlation Between Capital Income and XCana Petroleum

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Can any of the company-specific risk be diversified away by investing in both Capital Income and XCana Petroleum 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 XCana Petroleum 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 XCana Petroleum, you can compare the effects of market volatilities on Capital Income and XCana Petroleum 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 XCana Petroleum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Income and XCana Petroleum.

Diversification Opportunities for Capital Income and XCana Petroleum

0.09
  Correlation Coefficient

Significant diversification

The 3 months correlation between Capital and XCana is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Capital Income Builder and XCana Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XCana Petroleum 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 XCana Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XCana Petroleum has no effect on the direction of Capital Income i.e., Capital Income and XCana Petroleum go up and down completely randomly.

Pair Corralation between Capital Income and XCana Petroleum

Assuming the 90 days horizon Capital Income is expected to generate 83.32 times less return on investment than XCana Petroleum. But when comparing it to its historical volatility, Capital Income Builder is 78.62 times less risky than XCana Petroleum. It trades about 0.23 of its potential returns per unit of risk. XCana Petroleum is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  3.50  in XCana Petroleum on October 23, 2024 and sell it today you would earn a total of  3.80  from holding XCana Petroleum or generate 108.57% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy95.0%
ValuesDaily Returns

Capital Income Builder  vs.  XCana Petroleum

 Performance 
       Timeline  
Capital Income Builder 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Capital Income Builder has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, Capital Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
XCana Petroleum 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in XCana Petroleum are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, XCana Petroleum unveiled solid returns over the last few months and may actually be approaching a breakup point.

Capital Income and XCana Petroleum Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Capital Income and XCana Petroleum

The main advantage of trading using opposite Capital Income and XCana Petroleum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital Income position performs unexpectedly, XCana Petroleum 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 XCana Petroleum will offset losses from the drop in XCana Petroleum's long position.
The idea behind Capital Income Builder and XCana Petroleum pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.

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