Correlation Between Capital World and Tcw Global

Can any of the company-specific risk be diversified away by investing in both Capital World and Tcw 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 World and Tcw Global 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 Tcw Global Bond, you can compare the effects of market volatilities on Capital World and Tcw 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 World with a short position of Tcw Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital World and Tcw Global.

Diversification Opportunities for Capital World and Tcw Global

0.98

Correlation Coefficient

Capital World  Tcw Global

Almost no diversification

The 3 months correlation between Capital and Tcw is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Capital World Bond and Tcw Global Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tcw Global Bond 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 Tcw Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tcw Global Bond has no effect on the direction of Capital World i.e., Capital World and Tcw Global go up and down completely randomly.

Pair Corralation between Capital World and Tcw Global

Assuming the 90 days horizon Capital World is expected to generate 1.05 times less return on investment than Tcw Global. But when comparing it to its historical volatility, Capital World Bond is 1.04 times less risky than Tcw Global. It trades about 0.17 of its potential returns per unit of risk. Tcw Global Bond is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  815.00  in Tcw Global Bond on September 13, 2024 and sell it today you would earn a total of  9.00  from holding Tcw Global Bond or generate 1.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

Capital World Bond  vs.  Tcw Global Bond

Capital World Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Tcw Global Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tcw Global Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, Tcw 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 World and Tcw Global

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

The idea behind Capital World Bond and Tcw Global Bond 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.