Correlation Between Limited Term and Capital World
Can any of the company-specific risk be diversified away by investing in both Limited Term 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 Limited Term and Capital World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Limited Term Tax and Capital World Bond, you can compare the effects of market volatilities on Limited Term 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 Limited Term with a short position of Capital World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Limited Term and Capital World.
Diversification Opportunities for Limited Term and Capital World
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between LIMITED and Capital is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Limited Term Tax 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 Limited Term 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 Limited Term Tax 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 Limited Term i.e., Limited Term and Capital World go up and down completely randomly.
Pair Corralation between Limited Term and Capital World
Assuming the 90 days horizon Limited Term Tax is expected to generate 0.45 times more return on investment than Capital World. However, Limited Term Tax is 2.23 times less risky than Capital World. It trades about 0.14 of its potential returns per unit of risk. Capital World Bond is currently generating about -0.01 per unit of risk. If you would invest 1,536 in Limited Term Tax on September 4, 2024 and sell it today you would earn a total of 8.00 from holding Limited Term Tax or generate 0.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.24% |
| Values | Daily Returns |
Limited Term Tax vs. Capital World Bond
Performance |
| Timeline |
| Limited Term Tax |
| Capital World Bond |
Limited Term and Capital World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Limited Term and Capital World
The main advantage of trading using opposite Limited Term and Capital World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Limited Term 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.| Limited Term vs. Tax Exempt Bond | Limited Term vs. Intermediate Bond Fund | Limited Term vs. American High Income Municipal | Limited Term vs. Us Government Securities |
| Capital World vs. Columbia Real Estate | Capital World vs. Pender Real Estate | Capital World vs. Commonwealth Real Estate | Capital World vs. Columbia Real Estate |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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