Correlation Between Pace High and Capital World
Can any of the company-specific risk be diversified away by investing in both Pace High 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 Pace High and Capital World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Pace High Yield and Capital World Growth, you can compare the effects of market volatilities on Pace High 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 Pace High with a short position of Capital World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pace High and Capital World.
Diversification Opportunities for Pace High and Capital World
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Pace and Capital is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Pace High Yield and Capital World Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital World Growth and Pace High 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 Pace High Yield 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 Growth has no effect on the direction of Pace High i.e., Pace High and Capital World go up and down completely randomly.
Pair Corralation between Pace High and Capital World
Assuming the 90 days horizon Pace High is expected to generate 2.06 times less return on investment than Capital World. But when comparing it to its historical volatility, Pace High Yield is 5.38 times less risky than Capital World. It trades about 0.47 of its potential returns per unit of risk. Capital World Growth is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 6,853 in Capital World Growth on September 13, 2024 and sell it today you would earn a total of 125.00 from holding Capital World Growth or generate 1.82% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Pace High Yield vs. Capital World Growth
Performance |
| Timeline |
| Pace High Yield |
| Capital World Growth |
Pace High and Capital World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Pace High and Capital World
The main advantage of trading using opposite Pace High and Capital World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pace High 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.| Pace High vs. Pace Smallmedium Value | Pace High vs. Pace International Equity | Pace High vs. Pace International Equity | Pace High vs. Ubs Allocation Fund |
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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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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