Correlation Between Government Securities and Capital World
Can any of the company-specific risk be diversified away by investing in both Government Securities 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 Government Securities and Capital World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Government Securities Fund and Capital World Growth, you can compare the effects of market volatilities on Government Securities 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 Government Securities with a short position of Capital World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Government Securities and Capital World.
Diversification Opportunities for Government Securities and Capital World
-0.37 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Government and Capital is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Government Securities Fund and Capital World Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital World Growth and Government Securities 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 Government Securities 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 Growth has no effect on the direction of Government Securities i.e., Government Securities and Capital World go up and down completely randomly.
Pair Corralation between Government Securities and Capital World
Assuming the 90 days horizon Government Securities is expected to generate 1.79 times less return on investment than Capital World. But when comparing it to its historical volatility, Government Securities Fund is 2.67 times less risky than Capital World. It trades about 0.09 of its potential returns per unit of risk. Capital World Growth is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 6,398 in Capital World Growth on September 3, 2024 and sell it today you would earn a total of 468.00 from holding Capital World Growth or generate 7.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Government Securities Fund vs. Capital World Growth
Performance |
| Timeline |
| Government Securities |
| Capital World Growth |
Government Securities and Capital World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Government Securities and Capital World
The main advantage of trading using opposite Government Securities and Capital World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Government Securities 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.| Government Securities vs. T Rowe Price | Government Securities vs. T Rowe Price | Government Securities vs. T Rowe Price | Government Securities vs. T Rowe Price |
| Capital World vs. Growth Strategy Fund | Capital World vs. Artisan Thematic Fund | Capital World vs. Ab Value Fund | Capital World vs. Volumetric Fund Volumetric |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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