Correlation Between American Funds and Capital Income
Can any of the company-specific risk be diversified away by investing in both American Funds and Capital Income 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 Income into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds Conservative and Capital Income Builder, you can compare the effects of market volatilities on American Funds and Capital Income 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 Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Capital Income.
Diversification Opportunities for American Funds and Capital Income
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between American and Capital is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Conservative and Capital Income Builder in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Income Builder 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 Conservative are associated (or correlated) with Capital Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Income Builder has no effect on the direction of American Funds i.e., American Funds and Capital Income go up and down completely randomly.
Pair Corralation between American Funds and Capital Income
Assuming the 90 days horizon American Funds is expected to generate 1.08 times less return on investment than Capital Income. But when comparing it to its historical volatility, American Funds Conservative is 1.32 times less risky than Capital Income. It trades about 0.2 of its potential returns per unit of risk. Capital Income Builder is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 5,841 in Capital Income Builder on August 25, 2024 and sell it today you would earn a total of 1,401 from holding Capital Income Builder or generate 23.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds Conservative vs. Capital Income Builder
Performance |
| Timeline |
| American Funds Conse |
| Capital Income Builder |
American Funds and Capital Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Capital Income
The main advantage of trading using opposite American Funds and Capital Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Capital Income 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 Income will offset losses from the drop in Capital Income's long position.| American Funds vs. Multisector Bond Sma | American Funds vs. Pace Municipal Fixed | American Funds vs. T Rowe Price | American Funds vs. Nuveen All American Municipal |
| Capital Income vs. Calvert High Yield | Capital Income vs. Siit High Yield | Capital Income vs. Ab Global Risk | Capital Income vs. Pioneer High Income |
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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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