Correlation Between Capital Management and Capital World
Can any of the company-specific risk be diversified away by investing in both Capital Management 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 Management 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 Management Mid Cap and Capital World Growth, you can compare the effects of market volatilities on Capital Management 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 Management with a short position of Capital World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Management and Capital World.
Diversification Opportunities for Capital Management and Capital World
0.16 | Correlation Coefficient |
Average diversification
The 3 months correlation between Capital and Capital is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Capital Management Mid Cap 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 Management 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 Management Mid Cap 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 Management i.e., Capital Management and Capital World go up and down completely randomly.
Pair Corralation between Capital Management and Capital World
Assuming the 90 days horizon Capital Management is expected to generate 1.52 times less return on investment than Capital World. In addition to that, Capital Management is 1.18 times more volatile than Capital World Growth. It trades about 0.07 of its total potential returns per unit of risk. Capital World Growth is currently generating about 0.13 per unit of volatility. If you would invest 5,415 in Capital World Growth on September 1, 2024 and sell it today you would earn a total of 1,485 from holding Capital World Growth or generate 27.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Capital Management Mid Cap vs. Capital World Growth
Performance |
| Timeline |
| Capital Management Mid |
| Capital World Growth |
Capital Management and Capital World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Capital Management and Capital World
The main advantage of trading using opposite Capital Management and Capital World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital Management 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 Management vs. Calvert Developed Market | Capital Management vs. Calvert Short Duration | Capital Management vs. Calvert Short Duration | Capital Management vs. Calvert Short Duration |
| Capital World vs. Nationwide Inflation Protected Securities | Capital World vs. Guidepath Managed Futures | Capital World vs. Arrow Managed Futures | Capital World vs. Ab Bond Inflation |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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