Correlation Between New World and New Perspective
Can any of the company-specific risk be diversified away by investing in both New World and New Perspective 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 World and New Perspective into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between New World Fund and New Perspective Fund, you can compare the effects of market volatilities on New World and New Perspective 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 World with a short position of New Perspective. Check out your portfolio center. Please also check ongoing floating volatility patterns of New World and New Perspective.
Diversification Opportunities for New World and New Perspective
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between New and New is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding New World Fund and New Perspective Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Perspective and New World 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 World Fund are associated (or correlated) with New Perspective. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Perspective has no effect on the direction of New World i.e., New World and New Perspective go up and down completely randomly.
Pair Corralation between New World and New Perspective
Assuming the 90 days horizon New World is expected to generate 10.35 times less return on investment than New Perspective. But when comparing it to its historical volatility, New World Fund is 1.08 times less risky than New Perspective. It trades about 0.01 of its potential returns per unit of risk. New Perspective Fund is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 5,674 in New Perspective Fund on August 24, 2024 and sell it today you would earn a total of 320.00 from holding New Perspective Fund or generate 5.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
New World Fund vs. New Perspective Fund
Performance |
| Timeline |
| New World Fund |
| New Perspective |
New World and New Perspective Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with New World and New Perspective
The main advantage of trading using opposite New World and New Perspective positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New World position performs unexpectedly, New Perspective 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 Perspective will offset losses from the drop in New Perspective's long position.| New World vs. Vanguard Emerging Markets | New World vs. Vanguard Emerging Markets | New World vs. HUMANA INC | New World vs. Aquagold International |
| New Perspective vs. Highland Longshort Healthcare | New Perspective vs. Baillie Gifford Health | New Perspective vs. Lord Abbett Health | New Perspective vs. Blackrock Health Sciences |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
Other Complementary Tools
| Idea Optimizer Use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio | |
| Bonds Directory Find actively traded corporate debentures issued by US companies | |
| Stocks Directory Find actively traded stocks across global markets | |
| Global Markets Map Get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes | |
| Portfolio Backtesting Avoid under-diversification and over-optimization by backtesting your portfolios |