Correlation Between Capital Income and Capital Growth
Can any of the company-specific risk be diversified away by investing in both Capital Income and Capital Growth 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 Growth 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 Growth Fund, you can compare the effects of market volatilities on Capital Income and Capital Growth 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 Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Income and Capital Growth.
Diversification Opportunities for Capital Income and Capital Growth
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Capital and Capital is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Capital Income Builder and Capital Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital 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 Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Growth has no effect on the direction of Capital Income i.e., Capital Income and Capital Growth go up and down completely randomly.
Pair Corralation between Capital Income and Capital Growth
Assuming the 90 days horizon Capital Income is expected to generate 1.4 times less return on investment than Capital Growth. But when comparing it to its historical volatility, Capital Income Builder is 1.52 times less risky than Capital Growth. It trades about 0.16 of its potential returns per unit of risk. Capital Growth Fund is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 1,124 in Capital Growth Fund on September 1, 2024 and sell it today you would earn a total of 360.00 from holding Capital Growth Fund or generate 32.03% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.63% |
| Values | Daily Returns |
Capital Income Builder vs. Capital Growth Fund
Performance |
| Timeline |
| Capital Income Builder |
| Capital Growth |
Capital Income and Capital Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Capital Income and Capital Growth
The main advantage of trading using opposite Capital Income and Capital Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital Income position performs unexpectedly, Capital Growth 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 Growth will offset losses from the drop in Capital Growth's long position.| Capital Income vs. Income Fund Of | Capital Income vs. New World Fund | Capital Income vs. American Mutual Fund | Capital Income vs. American Mutual Fund |
| Capital Growth vs. Chestnut Street Exchange | Capital Growth vs. Jpmorgan Trust I | Capital Growth vs. Prudential Government Money | Capital Growth vs. Ashmore Emerging Markets |
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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