Correlation Between Capital World and Capital Growth

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

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

Diversification Opportunities for Capital World and Capital Growth

0.86

Correlation Coefficient

Capital World  Capital Growth

Very poor diversification

The 3 months correlation between Capital and Capital is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Capital World Growth and Capital Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Growth 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 Growth are associated (or correlated) with Capital Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Growth has no effect on the direction of Capital World i.e., Capital World and Capital Growth go up and down completely randomly.

Pair Corralation between Capital World and Capital Growth

Assuming the 90 days horizon Capital World is expected to generate 1.08 times less return on investment than Capital Growth. In addition to that, Capital World is 1.0 times more volatile than Capital Growth Fund. It trades about 0.04 of its total potential returns per unit of risk. Capital Growth Fund is currently generating about 0.04 per unit of volatility. If you would invest  1,449  in Capital Growth Fund on August 30, 2024 and sell it today you would earn a total of  24.00  from holding Capital Growth Fund or generate 1.66% return on investment over 90 days.

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

Capital World Growth  vs.  Capital Growth Fund

Capital World Growth

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Capital World Growth are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical indicators, Capital World is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Capital Growth

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Growth Fund are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Capital Growth 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 Capital Growth

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

The idea behind Capital World Growth and Capital Growth Fund 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.