Correlation Between Materials Portfolio and Capital Income

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

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

Diversification Opportunities for Materials Portfolio and Capital Income

0.66

Correlation Coefficient

Materials Portfolio  Capital Income

Poor diversification

The 3 months correlation between Materials and CAPITAL is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Materials Portfolio Fidelity 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 Materials Portfolio 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 Materials Portfolio Fidelity 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 Materials Portfolio i.e., Materials Portfolio and Capital Income go up and down completely randomly.

Pair Corralation between Materials Portfolio and Capital Income

Assuming the 90 days horizon Materials Portfolio is expected to generate 2.16 times less return on investment than Capital Income. In addition to that, Materials Portfolio is 2.14 times more volatile than Capital Income Builder. It trades about 0.03 of its total potential returns per unit of risk. Capital Income Builder is currently generating about 0.12 per unit of volatility. If you would invest  6,833  in Capital Income Builder on September 4, 2024 and sell it today you would earn a total of  495.00  from holding Capital Income Builder or generate 7.24% return on investment over 90 days.

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

Materials Portfolio Fidelity  vs.  Capital Income Builder

Materials Portfolio

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Materials Portfolio Fidelity are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Materials Portfolio may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Capital Income Builder

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Income Builder are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. 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.

Pair Trading with Materials Portfolio and Capital Income

The main advantage of trading using opposite Materials Portfolio and Capital Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Materials Portfolio 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.

The idea behind Materials Portfolio Fidelity and Capital Income Builder 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.

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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.