Correlation Between American Funds and Capital World
Can any of the company-specific risk be diversified away by investing in both American Funds 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 Funds 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 Funds Retirement and Capital World Growth, you can compare the effects of market volatilities on American Funds 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 Funds with a short position of Capital World. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Capital World.
Diversification Opportunities for American Funds and Capital World
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between American and Capital is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Retirement 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 Funds 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 Funds Retirement 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 Funds i.e., American Funds and Capital World go up and down completely randomly.
Pair Corralation between American Funds and Capital World
Assuming the 90 days horizon American Funds is expected to generate 1.75 times less return on investment than Capital World. But when comparing it to its historical volatility, American Funds Retirement is 1.79 times less risky than Capital World. It trades about 0.09 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 4,984 in Capital World Growth on August 30, 2024 and sell it today you would earn a total of 1,840 from holding Capital World Growth or generate 36.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds Retirement vs. Capital World Growth
Performance |
| Timeline |
| American Funds Retirement |
| Capital World Growth |
American Funds and Capital World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Capital World
The main advantage of trading using opposite American Funds and Capital World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds 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 Funds vs. Mirova Global Green | American Funds vs. Oklahoma Municipal Fund | American Funds vs. Sterling Capital Short | American Funds vs. Touchstone Ohio Tax |
| Capital World vs. Commonwealth Australianew Zealand | Capital World vs. Commonwealth Japan Fund | Capital World vs. Commonwealth Real Estate | Capital World vs. HUMANA INC |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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