Correlation Between New Perspective and Capital World
Can any of the company-specific risk be diversified away by investing in both New Perspective 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 New Perspective and Capital World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between New Perspective Fund and Capital World Growth, you can compare the effects of market volatilities on New Perspective 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 New Perspective with a short position of Capital World. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Perspective and Capital World.
Diversification Opportunities for New Perspective and Capital World
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between New and Capital is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding New Perspective Fund 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 New Perspective 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 New Perspective Fund 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 New Perspective i.e., New Perspective and Capital World go up and down completely randomly.
Pair Corralation between New Perspective and Capital World
Assuming the 90 days horizon New Perspective Fund is expected to under-perform the Capital World. In addition to that, New Perspective is 1.04 times more volatile than Capital World Growth. It trades about -0.33 of its total potential returns per unit of risk. Capital World Growth is currently generating about -0.28 per unit of volatility. If you would invest 6,398 in Capital World Growth on January 20, 2024 and sell it today you would lose (227.00) from holding Capital World Growth or give up 3.55% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
New Perspective Fund vs. Capital World Growth
Performance |
| Timeline |
| New Perspective |
| Capital World Growth |
New Perspective and Capital World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with New Perspective and Capital World
The main advantage of trading using opposite New Perspective and Capital World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Perspective 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.| New Perspective vs. New World Fund | New Perspective vs. American Mutual Fund | New Perspective vs. American Mutual Fund | New Perspective vs. American Funds Income |
| Capital World vs. Income Fund Of | Capital World vs. New World Fund | Capital World vs. American Mutual Fund | Capital World 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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