Correlation Between Energy Services and Capital World
Can any of the company-specific risk be diversified away by investing in both Energy Services 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 Energy Services and Capital World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Energy Services Fund and Capital World Bond, you can compare the effects of market volatilities on Energy Services 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 Energy Services with a short position of Capital World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Services and Capital World.
Diversification Opportunities for Energy Services and Capital World
-0.27 | Correlation Coefficient |
Very good diversification
The 3 months correlation between ENERGY and Capital is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Energy Services Fund and Capital World Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital World Bond and Energy Services 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 Energy Services Fund 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 Bond has no effect on the direction of Energy Services i.e., Energy Services and Capital World go up and down completely randomly.
Pair Corralation between Energy Services and Capital World
Assuming the 90 days horizon Energy Services Fund is expected to generate 5.36 times more return on investment than Capital World. However, Energy Services is 5.36 times more volatile than Capital World Bond. It trades about 0.22 of its potential returns per unit of risk. Capital World Bond is currently generating about 0.02 per unit of risk. If you would invest 22,166 in Energy Services Fund on September 1, 2024 and sell it today you would earn a total of 2,461 from holding Energy Services Fund or generate 11.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Energy Services Fund vs. Capital World Bond
Performance |
| Timeline |
| Energy Services |
| Capital World Bond |
Energy Services and Capital World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Energy Services and Capital World
The main advantage of trading using opposite Energy Services and Capital World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Services 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.| Energy Services vs. Basic Materials Fund | Energy Services vs. Electronics Fund Investor | Energy Services vs. Health Care Fund | Energy Services vs. Precious Metals Fund |
| Capital World vs. Dreyfus Natural Resources | Capital World vs. Jennison Natural Resources | Capital World vs. Fidelity Advisor Energy | Capital World vs. Energy Services Fund |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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