Correlation Between Capital World and American Funds
Can any of the company-specific risk be diversified away by investing in both Capital World and American Funds 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 American Funds 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 American Funds Capital, you can compare the effects of market volatilities on Capital World and American Funds 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 American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital World and American Funds.
Diversification Opportunities for Capital World and American Funds
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Capital and American is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Capital World Growth and American Funds Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Capital 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 American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Capital has no effect on the direction of Capital World i.e., Capital World and American Funds go up and down completely randomly.
Pair Corralation between Capital World and American Funds
Assuming the 90 days horizon Capital World is expected to generate 1.02 times less return on investment than American Funds. In addition to that, Capital World is 1.0 times more volatile than American Funds Capital. It trades about 0.09 of its total potential returns per unit of risk. American Funds Capital is currently generating about 0.09 per unit of volatility. If you would invest 5,042 in American Funds Capital on September 3, 2024 and sell it today you would earn a total of 1,854 from holding American Funds Capital or generate 36.77% 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. American Funds Capital
Performance |
| Timeline |
| Capital World Growth |
| American Funds Capital |
Capital World and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Capital World and American Funds
The main advantage of trading using opposite Capital World and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital World position performs unexpectedly, American Funds 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 American Funds will offset losses from the drop in American Funds' long position.| Capital World vs. Growth Strategy Fund | Capital World vs. Artisan Thematic Fund | Capital World vs. Ab Value Fund | Capital World vs. Volumetric Fund Volumetric |
| American Funds vs. Capital Income Builder | American Funds vs. Growth Fund Of | American Funds vs. American Funds Fundamental | American Funds vs. Income 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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