Correlation Between American Balanced and Capital World
Can any of the company-specific risk be diversified away by investing in both American Balanced 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 American Balanced and Capital World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Balanced Fund and Capital World Growth, you can compare the effects of market volatilities on American Balanced 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 American Balanced with a short position of Capital World. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Balanced and Capital World.
Diversification Opportunities for American Balanced and Capital World
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 Balanced Fund 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 American Balanced 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 Balanced Fund 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 American Balanced i.e., American Balanced and Capital World go up and down completely randomly.
Pair Corralation between American Balanced and Capital World
Assuming the 90 days horizon American Balanced is expected to generate 1.16 times less return on investment than Capital World. But when comparing it to its historical volatility, American Balanced Fund is 1.4 times less risky than Capital World. It trades about 0.11 of its potential returns per unit of risk. Capital World Growth is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 5,133 in Capital World Growth on September 3, 2024 and sell it today you would earn a total of 1,765 from holding Capital World Growth or generate 34.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Balanced Fund vs. Capital World Growth
Performance |
| Timeline |
| American Balanced |
| Capital World Growth |
American Balanced and Capital World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Balanced and Capital World
The main advantage of trading using opposite American Balanced and Capital World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Balanced 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.| American Balanced vs. Washington Mutual Investors | American Balanced vs. New Perspective Fund | American Balanced vs. Amcap Fund Class | American Balanced vs. Growth Fund Of |
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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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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