Correlation Between Capital Income and Highland Global

Can any of the company-specific risk be diversified away by investing in both Capital Income and Highland Global 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 Income and Highland Global into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Capital Income Builder and Highland Global Allocation, you can compare the effects of market volatilities on Capital Income and Highland Global 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 Income with a short position of Highland Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Income and Highland Global.

Diversification Opportunities for Capital Income and Highland Global

0.71

Correlation Coefficient

Capital Income  Highland Global

Poor diversification

The 3 months correlation between Capital and Highland is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Capital Income Builder and Highland Global Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highland Global Allo and Capital Income 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 Income Builder are associated (or correlated) with Highland Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Highland Global Allo has no effect on the direction of Capital Income i.e., Capital Income and Highland Global go up and down completely randomly.

Pair Corralation between Capital Income and Highland Global

Assuming the 90 days horizon Capital Income is expected to generate 23.7 times less return on investment than Highland Global. But when comparing it to its historical volatility, Capital Income Builder is 2.3 times less risky than Highland Global. It trades about 0.01 of its potential returns per unit of risk. Highland Global Allocation is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  755.00  in Highland Global Allocation on September 12, 2024 and sell it today you would earn a total of  21.00  from holding Highland Global Allocation or generate 2.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Capital Income Builder  vs.  Highland Global Allocation

Capital Income Builder

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Capital Income Builder has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Capital Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Highland Global Allo

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Highland Global Allocation are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat strong essential indicators, Highland Global is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Capital Income and Highland Global

The main advantage of trading using opposite Capital Income and Highland Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital Income position performs unexpectedly, Highland Global 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 Highland Global will offset losses from the drop in Highland Global's long position.

The idea behind Capital Income Builder and Highland Global Allocation pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.