Correlation Between Capital Income and Capital World
Can any of the company-specific risk be diversified away by investing in both Capital Income 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 Capital Income and Capital World 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 Capital World Growth, you can compare the effects of market volatilities on Capital Income 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 Capital Income with a short position of Capital World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Income and Capital World.
Diversification Opportunities for Capital Income and Capital World
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Capital and Capital is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Capital Income Builder and Capital World Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital World Growth 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 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 Growth has no effect on the direction of Capital Income i.e., Capital Income and Capital World go up and down completely randomly.
Pair Corralation between Capital Income and Capital World
Assuming the 90 days horizon Capital Income Builder is expected to under-perform the Capital World. But the mutual fund apears to be less risky and, when comparing its historical volatility, Capital Income Builder is 1.56 times less risky than Capital World. The mutual fund trades about -0.07 of its potential returns per unit of risk. The Capital World Growth is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest 6,839 in Capital World Growth on August 27, 2024 and sell it today you would lose (39.00) from holding Capital World Growth or give up 0.57% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Capital Income Builder vs. Capital World Growth
Performance |
| Timeline |
| Capital Income Builder |
| Capital World Growth |
Capital Income and Capital World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Capital Income and Capital World
The main advantage of trading using opposite Capital Income and Capital World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital Income 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.| Capital Income vs. Income Fund Of | Capital Income vs. Capital World Growth | Capital Income vs. American Balanced Fund | Capital Income vs. Growth Fund Of |
| 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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