Correlation Between Capital Growth and Capital Income
Can any of the company-specific risk be diversified away by investing in both Capital Growth 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 Growth 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 Growth Fund and Capital Income Builder, you can compare the effects of market volatilities on Capital Growth 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 Growth with a short position of Capital Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Growth and Capital Income.
Diversification Opportunities for Capital Growth and Capital Income
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Capital and Capital is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Capital Growth 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 Capital Growth 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 Growth 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 Capital Growth i.e., Capital Growth and Capital Income go up and down completely randomly.
Pair Corralation between Capital Growth and Capital Income
Assuming the 90 days horizon Capital Growth Fund is expected to generate 1.74 times more return on investment than Capital Income. However, Capital Growth is 1.74 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 0.14 per unit of risk. If you would invest 1,369 in Capital Growth Fund on September 1, 2024 and sell it today you would earn a total of 115.00 from holding Capital Growth Fund or generate 8.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.21% |
| Values | Daily Returns |
Capital Growth Fund vs. Capital Income Builder
Performance |
| Timeline |
| Capital Growth |
| Capital Income Builder |
Capital Growth and Capital Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Capital Growth and Capital Income
The main advantage of trading using opposite Capital Growth and Capital Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital Growth 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 Growth vs. Chestnut Street Exchange | Capital Growth vs. Jpmorgan Trust I | Capital Growth vs. Prudential Government Money | Capital Growth vs. Ashmore Emerging Markets |
| Capital Income vs. Income Fund Of | Capital Income vs. New World Fund | Capital Income vs. American Mutual Fund | Capital Income vs. American Mutual 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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