Correlation Between Global Franchise and Capital World
Can any of the company-specific risk be diversified away by investing in both Global Franchise 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 Global Franchise and Capital World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Global Franchise Portfolio and Capital World Growth, you can compare the effects of market volatilities on Global Franchise 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 Global Franchise with a short position of Capital World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Franchise and Capital World.
Diversification Opportunities for Global Franchise and Capital World
0.41 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Global and Capital is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Global Franchise Portfolio 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 Global Franchise 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 Global Franchise Portfolio 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 Global Franchise i.e., Global Franchise and Capital World go up and down completely randomly.
Pair Corralation between Global Franchise and Capital World
Assuming the 90 days horizon Global Franchise is expected to generate 2.06 times less return on investment than Capital World. But when comparing it to its historical volatility, Global Franchise Portfolio is 1.04 times less risky than Capital World. It trades about 0.06 of its potential returns per unit of risk. Capital World Growth is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 5,273 in Capital World Growth on January 19, 2024 and sell it today you would earn a total of 971.00 from holding Capital World Growth or generate 18.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Global Franchise Portfolio vs. Capital World Growth
Performance |
| Timeline |
| Global Franchise Por |
| Capital World Growth |
Global Franchise and Capital World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Global Franchise and Capital World
The main advantage of trading using opposite Global Franchise and Capital World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Franchise 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.| Global Franchise vs. Commonwealth Real Estate | Global Franchise vs. Gamco Global Opportunity | Global Franchise vs. HUMANA INC | Global Franchise vs. Aquagold International |
| Capital World vs. Commonwealth Real Estate | Capital World vs. Gamco Global Opportunity | Capital World vs. HUMANA INC | Capital World vs. Aquagold International |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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