Correlation Between Capital World and Capital Management
Can any of the company-specific risk be diversified away by investing in both Capital World and Capital Management 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 Management 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 Management Mid Cap, you can compare the effects of market volatilities on Capital World and Capital Management 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 Management. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital World and Capital Management.
Diversification Opportunities for Capital World and Capital Management
0.47 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Capital and Capital is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Capital World Growth and Capital Management Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Management Mid 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 Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Management Mid has no effect on the direction of Capital World i.e., Capital World and Capital Management go up and down completely randomly.
Pair Corralation between Capital World and Capital Management
Assuming the 90 days horizon Capital World is expected to generate 1.17 times less return on investment than Capital Management. But when comparing it to its historical volatility, Capital World Growth is 1.24 times less risky than Capital Management. It trades about 0.13 of its potential returns per unit of risk. Capital Management Mid Cap is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 2,325 in Capital Management Mid Cap on September 1, 2024 and sell it today you would earn a total of 754.00 from holding Capital Management Mid Cap or generate 32.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Capital World Growth vs. Capital Management Mid Cap
Performance |
| Timeline |
| Capital World Growth |
| Capital Management Mid |
Capital World and Capital Management Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Capital World and Capital Management
The main advantage of trading using opposite Capital World and Capital Management positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital World position performs unexpectedly, Capital Management 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 Management will offset losses from the drop in Capital Management'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 |
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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 Stocks Directory module to find actively traded stocks across global markets.
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