Correlation Between Global Quality and Capital World
Can any of the company-specific risk be diversified away by investing in both Global Quality 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 Quality 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 Quality Portfolio and Capital World Growth, you can compare the effects of market volatilities on Global Quality 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 Quality with a short position of Capital World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Quality and Capital World.
Diversification Opportunities for Global Quality and Capital World
0.49 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Global and Capital is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Global Quality 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 Quality 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 Quality 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 Quality i.e., Global Quality and Capital World go up and down completely randomly.
Pair Corralation between Global Quality and Capital World
Assuming the 90 days horizon Global Quality Portfolio is expected to under-perform the Capital World. In addition to that, Global Quality is 1.12 times more volatile than Capital World Growth. It trades about -0.15 of its total potential returns per unit of risk. Capital World Growth is currently generating about -0.12 per unit of volatility. If you would invest 6,418 in Capital World Growth on January 26, 2024 and sell it today you would lose (121.00) from holding Capital World Growth or give up 1.89% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Global Quality Portfolio vs. Capital World Growth
Performance |
Timeline |
Global Quality Portfolio |
Capital World Growth |
Global Quality and Capital World Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Global Quality and Capital World
The main advantage of trading using opposite Global Quality and Capital World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Quality 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 Quality vs. American Funds Capital | Global Quality vs. American Funds Capital | Global Quality vs. Capital World Growth | Global Quality vs. Capital World Growth |
Capital World vs. American Funds Capital | Capital World vs. American Funds Capital | Capital World vs. Capital World Growth | Capital World vs. Capital World Growth |
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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