Correlation Between SPACE and Capital World

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

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

Diversification Opportunities for SPACE and Capital World

0.41

Correlation Coefficient

SPACE  Capital World

Very weak diversification

The 3 months correlation between SPACE and Capital is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding SPACE and Capital World Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital World Growth and SPACE 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 SPACE are associated (or correlated) with Capital World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital World Growth has no effect on the direction of SPACE i.e., SPACE and Capital World go up and down completely randomly.

Pair Corralation between SPACE and Capital World

Assuming the 90 days horizon SPACE is expected to generate 7.35 times more return on investment than Capital World. However, SPACE is 7.35 times more volatile than Capital World Growth. It trades about 0.19 of its potential returns per unit of risk. Capital World Growth is currently generating about 0.09 per unit of risk. If you would invest  33.00  in SPACE on August 31, 2024 and sell it today you would earn a total of  22.00  from holding SPACE or generate 66.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

SPACE  vs.  Capital World Growth

SPACE

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPACE are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, SPACE exhibited solid returns over the last few months and may actually be approaching a breakup point.

Capital World Growth

Risk-Adjusted Performance

7 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Capital World Growth are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Capital World is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with SPACE and Capital World

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

The idea behind SPACE and Capital World Growth 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.