Correlation Between Capital World and Capital Income
Can any of the company-specific risk be diversified away by investing in both Capital World 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 Capital World and Capital Income into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Capital World Growth and Capital Income Builder, you can compare the effects of market volatilities on Capital World 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 Capital World with a short position of Capital Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital World and Capital Income.
Diversification Opportunities for Capital World and Capital Income
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Capital and Capital is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Capital World Growth 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 Capital 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 Capital World Growth 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 Capital World i.e., Capital World and Capital Income go up and down completely randomly.
Pair Corralation between Capital World and Capital Income
Assuming the 90 days horizon Capital World Growth is expected to generate 1.57 times more return on investment than Capital Income. However, Capital World is 1.57 times more volatile than Capital Income Builder. It trades about 0.08 of its potential returns per unit of risk. Capital Income Builder is currently generating about 0.12 per unit of risk. If you would invest 6,223 in Capital World Growth on September 1, 2024 and sell it today you would earn a total of 677.00 from holding Capital World Growth or generate 10.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Capital World Growth vs. Capital Income Builder
Performance |
| Timeline |
| Capital World Growth |
| Capital Income Builder |
Capital World and Capital Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Capital World and Capital Income
The main advantage of trading using opposite Capital World and Capital Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital World 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.| Capital World vs. Nationwide Inflation Protected Securities | Capital World vs. Guidepath Managed Futures | Capital World vs. Arrow Managed Futures | Capital World vs. Ab Bond Inflation |
| Capital Income vs. Delaware Limited Term Diversified | Capital Income vs. Pgim Jennison Diversified | Capital Income vs. American Century Diversified | Capital Income vs. Western Asset Diversified |
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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