Correlation Between Us Government and Capital Income
Can any of the company-specific risk be diversified away by investing in both Us Government 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 Us Government and Capital Income into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Us Government Securities and Capital Income Builder, you can compare the effects of market volatilities on Us Government 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 Us Government with a short position of Capital Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Us Government and Capital Income.
Diversification Opportunities for Us Government and Capital Income
0.11 | Correlation Coefficient |
Average diversification
The 3 months correlation between USGFX and Capital is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Us Government Securities 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 Us Government 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 Us Government Securities 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 Us Government i.e., Us Government and Capital Income go up and down completely randomly.
Pair Corralation between Us Government and Capital Income
Assuming the 90 days horizon Us Government is expected to generate 2.85 times less return on investment than Capital Income. But when comparing it to its historical volatility, Us Government Securities is 1.44 times less risky than Capital Income. It trades about 0.07 of its potential returns per unit of risk. Capital Income Builder is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 6,729 in Capital Income Builder on September 2, 2024 and sell it today you would earn a total of 597.00 from holding Capital Income Builder or generate 8.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Us Government Securities vs. Capital Income Builder
Performance |
| Timeline |
| Us Government Securities |
| Capital Income Builder |
Us Government and Capital Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Us Government and Capital Income
The main advantage of trading using opposite Us Government and Capital Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Us Government 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.| Us Government vs. Small Cap Stock | Us Government vs. Sentinel Small Pany | Us Government vs. Aqr Diversified Arbitrage | Us Government vs. Lord Abbett Diversified |
| 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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