Correlation Between Capital World and American Balanced
Can any of the company-specific risk be diversified away by investing in both Capital World and American Balanced 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 American Balanced 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 American Balanced Fund, you can compare the effects of market volatilities on Capital World and American Balanced 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 American Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital World and American Balanced.
Diversification Opportunities for Capital World and American Balanced
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Capital and American is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Capital World Bond and American Balanced Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Balanced 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 American Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Balanced has no effect on the direction of Capital World i.e., Capital World and American Balanced go up and down completely randomly.
Pair Corralation between Capital World and American Balanced
Assuming the 90 days horizon Capital World Bond is expected to under-perform the American Balanced. But the mutual fund apears to be less risky and, when comparing its historical volatility, Capital World Bond is 1.91 times less risky than American Balanced. The mutual fund trades about -0.08 of its potential returns per unit of risk. The American Balanced Fund is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 3,424 in American Balanced Fund on October 23, 2024 and sell it today you would earn a total of 42.00 from holding American Balanced Fund or generate 1.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Capital World Bond vs. American Balanced Fund
Performance |
| Timeline |
| Capital World Bond |
| American Balanced |
Capital World and American Balanced Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Capital World and American Balanced
The main advantage of trading using opposite Capital World and American Balanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital World position performs unexpectedly, American Balanced 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 American Balanced will offset losses from the drop in American Balanced's long position.| Capital World vs. New World Fund | Capital World vs. Bond Fund Of | Capital World vs. American High Income | Capital World vs. Europacific Growth Fund |
| American Balanced vs. Income Fund Of | American Balanced vs. American Funds 2015 | American Balanced vs. New World Fund | American Balanced 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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