Correlation Between Smallcap World and Capital Income
Can any of the company-specific risk be diversified away by investing in both Smallcap 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 Smallcap 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 Smallcap World Fund and Capital Income Builder, you can compare the effects of market volatilities on Smallcap 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 Smallcap World with a short position of Capital Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap World and Capital Income.
Diversification Opportunities for Smallcap World and Capital Income
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Smallcap and Capital is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap World Fund 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 Smallcap 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 Smallcap World Fund 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 Smallcap World i.e., Smallcap World and Capital Income go up and down completely randomly.
Pair Corralation between Smallcap World and Capital Income
Assuming the 90 days horizon Smallcap World is expected to generate 1.62 times less return on investment than Capital Income. In addition to that, Smallcap World is 1.88 times more volatile than Capital Income Builder. It trades about 0.04 of its total potential returns per unit of risk. Capital Income Builder is currently generating about 0.12 per unit of volatility. If you would invest 6,670 in Capital Income Builder on September 3, 2024 and sell it today you would earn a total of 662.00 from holding Capital Income Builder or generate 9.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Smallcap World Fund vs. Capital Income Builder
Performance |
| Timeline |
| Smallcap World |
| Capital Income Builder |
Smallcap World and Capital Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Smallcap World and Capital Income
The main advantage of trading using opposite Smallcap World and Capital Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smallcap 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.| Smallcap World vs. First American Funds | Smallcap World vs. Wilmington Funds | Smallcap World vs. Blackrock Exchange Portfolio | Smallcap World vs. Dws Government Money |
| Capital Income vs. Tiaa Cref Real Estate | Capital Income vs. Columbia Real Estate | Capital Income vs. Jhancock Real Estate | Capital Income vs. Prudential Real Estate |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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