Correlation Between Capital Income and American Balanced
Can any of the company-specific risk be diversified away by investing in both Capital Income and American Balanced 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 American Balanced 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 American Balanced Fund, you can compare the effects of market volatilities on Capital Income and American Balanced 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 American Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Income and American Balanced.
Diversification Opportunities for Capital Income and American Balanced
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Capital and American is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Capital Income Builder and American Balanced Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Balanced 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 American Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Balanced has no effect on the direction of Capital Income i.e., Capital Income and American Balanced go up and down completely randomly.
Pair Corralation between Capital Income and American Balanced
Assuming the 90 days horizon Capital Income Builder is expected to under-perform the American Balanced. But the mutual fund apears to be less risky and, when comparing its historical volatility, Capital Income Builder is 1.21 times less risky than American Balanced. The mutual fund trades about -0.06 of its potential returns per unit of risk. The American Balanced Fund is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 3,626 in American Balanced Fund on August 29, 2024 and sell it today you would earn a total of 60.00 from holding American Balanced Fund or generate 1.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Capital Income Builder vs. American Balanced Fund
Performance |
| Timeline |
| Capital Income Builder |
| American Balanced |
Capital Income and American Balanced Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Capital Income and American Balanced
The main advantage of trading using opposite Capital Income and American Balanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital Income position performs unexpectedly, American Balanced 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 American Balanced will offset losses from the drop in American Balanced's long position.| Capital Income vs. Income Fund Of | Capital Income vs. New World Fund | Capital Income vs. American Mutual Fund | Capital Income vs. American Mutual Fund |
| American Balanced vs. Income Fund Of | American Balanced vs. Capital Income Builder | American Balanced vs. Capital World Growth | American Balanced vs. Growth Fund Of |
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 Valuation module to check real value of public entities based on technical and fundamental data.
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