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
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between New and Capital is 0.9. 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 Fund is expected to generate 1.65 times more return on investment than Capital Income. However, New Economy is 1.65 times more volatile than Capital Income Builder. It trades about 0.18 of its potential returns per unit of risk. Capital Income Builder is currently generating about 0.24 per unit of risk. If you would invest 6,043 in New Economy Fund on October 20, 2024 and sell it today you would earn a total of 184.00 from holding New Economy Fund or generate 3.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very 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. Stone Ridge Diversified | New Economy vs. Guggenheim Diversified Income | New Economy vs. Tax Managed Mid Small | New Economy vs. Wilmington Diversified Income |
| Capital Income vs. Voya Government Money | Capital Income vs. Hewitt Money Market | Capital Income vs. Elfun Government Money | Capital Income vs. Prudential Government Money |
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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
Other Complementary Tools
| Sectors List of equity sectors categorizing publicly traded companies based on their primary business activities | |
| Equity Analysis Research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities | |
| Equity Forecasting Use basic forecasting models to generate price predictions and determine price momentum | |
| Share Portfolio Track or share privately all of your investments from the convenience of any device | |
| Pattern Recognition Use different Pattern Recognition models to time the market across multiple global exchanges |