Correlation Between Capital World and Us Government
Can any of the company-specific risk be diversified away by investing in both Capital World and Us Government 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 World and Us Government into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Capital World Bond and Us Government Securities, you can compare the effects of market volatilities on Capital World and Us Government 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 World with a short position of Us Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital World and Us Government.
Diversification Opportunities for Capital World and Us Government
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Capital and RGVJX is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Capital World Bond and Us Government Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Us Government Securities and Capital 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 Capital World Bond are associated (or correlated) with Us Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Us Government Securities has no effect on the direction of Capital World i.e., Capital World and Us Government go up and down completely randomly.
Pair Corralation between Capital World and Us Government
Assuming the 90 days horizon Capital World Bond is expected to under-perform the Us Government. In addition to that, Capital World is 1.31 times more volatile than Us Government Securities. It trades about -0.21 of its total potential returns per unit of risk. Us Government Securities is currently generating about -0.11 per unit of volatility. If you would invest 1,187 in Us Government Securities on August 27, 2024 and sell it today you would lose (8.00) from holding Us Government Securities or give up 0.67% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Capital World Bond vs. Us Government Securities
Performance |
| Timeline |
| Capital World Bond |
| Us Government Securities |
Capital World and Us Government Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Capital World and Us Government
The main advantage of trading using opposite Capital World and Us Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital World position performs unexpectedly, Us Government 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 Us Government will offset losses from the drop in Us Government's long position.| Capital World vs. Income Fund Of | Capital World vs. New World Fund | Capital World vs. American Mutual Fund | Capital World vs. American Mutual Fund |
| Us Government vs. Bond Fund Of | Us Government vs. Capital World Bond | Us Government vs. American Mutual Fund | Us Government vs. Smallcap World 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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