Correlation Between Capital Income and Kensington Defender
Can any of the company-specific risk be diversified away by investing in both Capital Income and Kensington Defender 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 Kensington Defender 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 Kensington Defender Institutional, you can compare the effects of market volatilities on Capital Income and Kensington Defender 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 Kensington Defender. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Income and Kensington Defender.
Diversification Opportunities for Capital Income and Kensington Defender
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Capital and Kensington is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Capital Income Builder and Kensington Defender Institutio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kensington Defender 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 Kensington Defender. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kensington Defender has no effect on the direction of Capital Income i.e., Capital Income and Kensington Defender go up and down completely randomly.
Pair Corralation between Capital Income and Kensington Defender
Assuming the 90 days horizon Capital Income Builder is expected to under-perform the Kensington Defender. In addition to that, Capital Income is 1.21 times more volatile than Kensington Defender Institutional. It trades about -0.13 of its total potential returns per unit of risk. Kensington Defender Institutional is currently generating about -0.06 per unit of volatility. If you would invest 1,063 in Kensington Defender Institutional on September 25, 2024 and sell it today you would lose (22.00) from holding Kensington Defender Institutional or give up 2.07% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 98.44% |
Values | Daily Returns |
Capital Income Builder vs. Kensington Defender Institutio
Performance |
Timeline |
Capital Income Builder |
Kensington Defender |
Capital Income and Kensington Defender Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Capital Income and Kensington Defender
The main advantage of trading using opposite Capital Income and Kensington Defender positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital Income position performs unexpectedly, Kensington Defender 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 Kensington Defender will offset losses from the drop in Kensington Defender's long position.Capital Income vs. Income Fund Of | Capital Income vs. New World Fund | Capital Income vs. American Mutual Fund | Capital Income 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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