Correlation Between New Economy and Capital Income
Can any of the company-specific risk be diversified away by investing in both New Economy and Capital Income 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 New Economy and Capital Income into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between New Economy Fund and Capital Income Builder, you can compare the effects of market volatilities on New Economy and Capital Income 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 New Economy with a short position of Capital Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Economy and Capital Income.
Diversification Opportunities for New Economy and Capital Income
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between New and Capital is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding New Economy Fund and Capital Income Builder in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Income Builder and New Economy 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 New Economy Fund are associated (or correlated) with Capital Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Income Builder has no effect on the direction of New Economy i.e., New Economy and Capital Income go up and down completely randomly.
Pair Corralation between New Economy and Capital Income
Assuming the 90 days horizon New Economy is expected to generate 1.16 times less return on investment than Capital Income. In addition to that, New Economy is 1.71 times more volatile than Capital Income Builder. It trades about 0.12 of its total potential returns per unit of risk. Capital Income Builder is currently generating about 0.24 per unit of volatility. If you would invest 6,821 in Capital Income Builder on October 20, 2024 and sell it today you would earn a total of 171.00 from holding Capital Income Builder or generate 2.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
New Economy Fund vs. Capital Income Builder
Performance |
| Timeline |
| New Economy Fund |
| Capital Income Builder |
New Economy and Capital Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with New Economy and Capital Income
The main advantage of trading using opposite New Economy and Capital Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Economy position performs unexpectedly, Capital Income 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 Income will offset losses from the drop in Capital Income's long position.| New Economy vs. Rmb Mendon Financial | New Economy vs. Icon Financial Fund | New Economy vs. Davis Financial Fund | New Economy vs. Goldman Sachs Financial |
| Capital Income vs. Neuberger Berman Real | Capital Income vs. Vanguard Reit Index | Capital Income vs. Dfa Real Estate | Capital Income vs. Prudential 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.
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