Correlation Between American Funds and Capital World
Can any of the company-specific risk be diversified away by investing in both American Funds 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 American Funds and Capital World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds American and Capital World Bond, you can compare the effects of market volatilities on American Funds 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 American Funds with a short position of Capital World. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Capital World.
Diversification Opportunities for American Funds and Capital World
-0.5 | Correlation Coefficient |
Very good diversification
The 3 months correlation between American and Capital is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding American Funds American and Capital World Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital World Bond and American Funds 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 American Funds American 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 Bond has no effect on the direction of American Funds i.e., American Funds and Capital World go up and down completely randomly.
Pair Corralation between American Funds and Capital World
Assuming the 90 days horizon American Funds American is expected to generate 1.29 times more return on investment than Capital World. However, American Funds is 1.29 times more volatile than Capital World Bond. It trades about 0.08 of its potential returns per unit of risk. Capital World Bond is currently generating about -0.1 per unit of risk. If you would invest 3,624 in American Funds American on August 28, 2024 and sell it today you would earn a total of 30.00 from holding American Funds American or generate 0.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds American vs. Capital World Bond
Performance |
| Timeline |
| American Funds American |
| Capital World Bond |
American Funds and Capital World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Capital World
The main advantage of trading using opposite American Funds and Capital World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds 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.| American Funds vs. Income Fund Of | American Funds vs. Capital Income Builder | American Funds vs. Capital World Growth | American Funds vs. Growth Fund Of |
| Capital World vs. Income Fund Of | Capital World vs. New World Fund | Capital World vs. American Mutual Fund | Capital World vs. American Mutual Fund |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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