Correlation Between New Perspective and New World
Can any of the company-specific risk be diversified away by investing in both New Perspective and New 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 Perspective and New World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between New Perspective Fund and New World Fund, you can compare the effects of market volatilities on New Perspective and New 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 Perspective with a short position of New World. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Perspective and New World.
Diversification Opportunities for New Perspective and New World
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between NEW and New is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding New Perspective Fund and New World Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New World Fund and New Perspective 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 Perspective Fund are associated (or correlated) with New World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New World Fund has no effect on the direction of New Perspective i.e., New Perspective and New World go up and down completely randomly.
Pair Corralation between New Perspective and New World
Assuming the 90 days horizon New Perspective Fund is expected to generate 1.08 times more return on investment than New World. However, New Perspective is 1.08 times more volatile than New World Fund. It trades about 0.01 of its potential returns per unit of risk. New World Fund is currently generating about -0.21 per unit of risk. If you would invest 6,025 in New Perspective Fund on August 30, 2024 and sell it today you would earn a total of 4.00 from holding New Perspective Fund or generate 0.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
New Perspective Fund vs. New World Fund
Performance |
| Timeline |
| New Perspective |
| New World Fund |
New Perspective and New World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with New Perspective and New World
The main advantage of trading using opposite New Perspective and New World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Perspective position performs unexpectedly, New 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 New World will offset losses from the drop in New World's long position.| New Perspective vs. T Rowe Price | New Perspective vs. T Rowe Price | New Perspective vs. HUMANA INC | New Perspective vs. Aquagold International |
| New World vs. Huber Capital Diversified | New World vs. Vanguard Strategic Small Cap | New World vs. The Gabelli Small | New World vs. Jhancock Diversified Macro |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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