Correlation Between Capital Income and Income Fund
Can any of the company-specific risk be diversified away by investing in both Capital Income and Income Fund 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 Income Fund 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 Income Fund Of, you can compare the effects of market volatilities on Capital Income and Income Fund 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 Income Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Income and Income Fund.
Diversification Opportunities for Capital Income and Income Fund
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between CAPITAL and Income is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Capital Income Builder and Income Fund Of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Income Fund 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 Income Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Income Fund has no effect on the direction of Capital Income i.e., Capital Income and Income Fund go up and down completely randomly.
Pair Corralation between Capital Income and Income Fund
Assuming the 90 days horizon Capital Income Builder is expected to under-perform the Income Fund. But the mutual fund apears to be less risky and, when comparing its historical volatility, Capital Income Builder is 1.02 times less risky than Income Fund. The mutual fund trades about -0.01 of its potential returns per unit of risk. The Income Fund Of is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 2,586 in Income Fund Of on August 29, 2024 and sell it today you would earn a total of 24.00 from holding Income Fund Of or generate 0.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Capital Income Builder vs. Income Fund Of
Performance |
| Timeline |
| Capital Income Builder |
| Income Fund |
Capital Income and Income Fund Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Capital Income and Income Fund
The main advantage of trading using opposite Capital Income and Income Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital Income position performs unexpectedly, Income Fund 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 Income Fund will offset losses from the drop in Income Fund'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 |
| Income Fund vs. Capital Income Builder | Income Fund vs. Capital World Growth | Income Fund vs. American Balanced Fund | Income Fund 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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