Correlation Between Capital World and World Core
Can any of the company-specific risk be diversified away by investing in both Capital World and World Core 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 World and World Core into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Capital World Growth and World Core Equity, you can compare the effects of market volatilities on Capital World and World Core 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 World with a short position of World Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital World and World Core.
Diversification Opportunities for Capital World and World Core
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Capital and World is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Capital World Growth and World Core Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Core Equity and Capital World 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 World Growth are associated (or correlated) with World Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Core Equity has no effect on the direction of Capital World i.e., Capital World and World Core go up and down completely randomly.
Pair Corralation between Capital World and World Core
Assuming the 90 days horizon Capital World is expected to generate 1.08 times less return on investment than World Core. But when comparing it to its historical volatility, Capital World Growth is 1.01 times less risky than World Core. It trades about 0.12 of its potential returns per unit of risk. World Core Equity is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 1,952 in World Core Equity on September 4, 2024 and sell it today you would earn a total of 611.00 from holding World Core Equity or generate 31.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Capital World Growth vs. World Core Equity
Performance |
| Timeline |
| Capital World Growth |
| World Core Equity |
Capital World and World Core Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Capital World and World Core
The main advantage of trading using opposite Capital World and World Core positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital World position performs unexpectedly, World Core 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 World Core will offset losses from the drop in World Core's long position.| Capital World vs. Locorr Longshort Modities | Capital World vs. Siit Ultra Short | Capital World vs. Maryland Short Term Tax Free | Capital World vs. Touchstone Ultra Short |
| World Core vs. The Gabelli Small | World Core vs. Lord Abbett Diversified | World Core vs. Harbor Diversified International | World Core vs. T Rowe Price |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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