Correlation Between Capital Income and Small Cap
Can any of the company-specific risk be diversified away by investing in both Capital Income and Small Cap 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 Income and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Capital Income Builder and Small Cap Stock, you can compare the effects of market volatilities on Capital Income and Small Cap 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 Income with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Income and Small Cap.
Diversification Opportunities for Capital Income and Small Cap
0.17 | Correlation Coefficient |
Average diversification
The 3 months correlation between Capital and Small is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Capital Income Builder and Small Cap Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Stock and Capital Income 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 Income Builder are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Stock has no effect on the direction of Capital Income i.e., Capital Income and Small Cap go up and down completely randomly.
Pair Corralation between Capital Income and Small Cap
Assuming the 90 days horizon Capital Income Builder is expected to under-perform the Small Cap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Capital Income Builder is 3.97 times less risky than Small Cap. The mutual fund trades about -0.03 of its potential returns per unit of risk. The Small Cap Stock is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 1,419 in Small Cap Stock on August 29, 2024 and sell it today you would earn a total of 119.00 from holding Small Cap Stock or generate 8.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Capital Income Builder vs. Small Cap Stock
Performance |
| Timeline |
| Capital Income Builder |
| Small Cap Stock |
Capital Income and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Capital Income and Small Cap
The main advantage of trading using opposite Capital Income and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital Income position performs unexpectedly, Small Cap 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 Small Cap will offset losses from the drop in Small Cap's long position.| Capital Income vs. Dreyfusstandish Global Fixed | Capital Income vs. Us Global Leaders | Capital Income vs. Ms Global Fixed | Capital Income vs. Kinetics Global Fund |
| Small Cap vs. Franklin Adjustable Government | Small Cap vs. Dreyfus Government Cash | Small Cap vs. Lord Abbett Government | Small Cap vs. Inverse Government Long |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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