Correlation Between New Economy and Capital World
Can any of the company-specific risk be diversified away by investing in both New Economy 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 New Economy and Capital World 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 World Bond, you can compare the effects of market volatilities on New Economy 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 New Economy with a short position of Capital World. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Economy and Capital World.
Diversification Opportunities for New Economy and Capital World
-0.66 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between New and Capital is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding New Economy Fund and Capital World Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital World Bond 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 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 Bond has no effect on the direction of New Economy i.e., New Economy and Capital World go up and down completely randomly.
Pair Corralation between New Economy and Capital World
Assuming the 90 days horizon New Economy Fund is expected to generate 2.57 times more return on investment than Capital World. However, New Economy is 2.57 times more volatile than Capital World Bond. It trades about 0.11 of its potential returns per unit of risk. Capital World Bond is currently generating about 0.03 per unit of risk. If you would invest 5,399 in New Economy Fund on September 3, 2024 and sell it today you would earn a total of 1,499 from holding New Economy Fund or generate 27.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
New Economy Fund vs. Capital World Bond
Performance |
| Timeline |
| New Economy Fund |
| Capital World Bond |
New Economy and Capital World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with New Economy and Capital World
The main advantage of trading using opposite New Economy and Capital World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Economy 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.| New Economy vs. Siit High Yield | New Economy vs. Metropolitan West High | New Economy vs. Western Asset High | New Economy vs. Calvert High Yield |
| Capital World vs. Capital World Bond | Capital World vs. Capital World Bond | Capital World vs. Capital World Bond | Capital World vs. Capital World Bond |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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