Correlation Between Foreign Bond and Capital World
Can any of the company-specific risk be diversified away by investing in both Foreign Bond 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 Foreign Bond and Capital World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Foreign Bond Fund and Capital World Bond, you can compare the effects of market volatilities on Foreign Bond 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 Foreign Bond with a short position of Capital World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Foreign Bond and Capital World.
Diversification Opportunities for Foreign Bond and Capital World
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Foreign and Capital is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Foreign Bond Fund and Capital World Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital World Bond and Foreign Bond 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 Foreign Bond 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 Bond has no effect on the direction of Foreign Bond i.e., Foreign Bond and Capital World go up and down completely randomly.
Pair Corralation between Foreign Bond and Capital World
Assuming the 90 days horizon Foreign Bond Fund is expected to generate 0.97 times more return on investment than Capital World. However, Foreign Bond Fund is 1.03 times less risky than Capital World. It trades about 0.11 of its potential returns per unit of risk. Capital World Bond is currently generating about 0.08 per unit of risk. If you would invest 696.00 in Foreign Bond Fund on January 20, 2024 and sell it today you would earn a total of 43.00 from holding Foreign Bond Fund or generate 6.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.19% |
| Values | Daily Returns |
Foreign Bond Fund vs. Capital World Bond
Performance |
| Timeline |
| Foreign Bond |
| Capital World Bond |
Foreign Bond and Capital World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Foreign Bond and Capital World
The main advantage of trading using opposite Foreign Bond and Capital World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Foreign Bond 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.| Foreign Bond vs. Pimco Rae Worldwide | Foreign Bond vs. Pimco Rae Worldwide | Foreign Bond vs. Pimco Rae Worldwide | Foreign Bond vs. Pimco Rae Worldwide |
| 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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