Correlation Between Capital Group and Ned Davis

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

By analyzing existing cross correlation between Capital Group Core and Ned Davis Research, you can compare the effects of market volatilities on Capital Group and Ned Davis 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 Group with a short position of Ned Davis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Group and Ned Davis.

Diversification Opportunities for Capital Group and Ned Davis

0.79

Correlation Coefficient

Capital Group  Ned Davis

Poor diversification

The 3 months correlation between Capital and Ned is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Capital Group Core and Ned Davis Research in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ned Davis Research and Capital Group 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 Group Core are associated (or correlated) with Ned Davis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ned Davis Research has no effect on the direction of Capital Group i.e., Capital Group and Ned Davis go up and down completely randomly.

Pair Corralation between Capital Group and Ned Davis

Given the investment horizon of 90 days Capital Group Core is expected to under-perform the Ned Davis. In addition to that, Capital Group is 1.02 times more volatile than Ned Davis Research. It trades about -0.01 of its total potential returns per unit of risk. Ned Davis Research is currently generating about 0.01 per unit of volatility. If you would invest  1,970  in Ned Davis Research on December 20, 2024 and sell it today you would earn a total of  2.00  from holding Ned Davis Research or generate 0.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Capital Group Core  vs.  Ned Davis Research

Capital Group Core

Risk-Adjusted Performance

Very Weak

Over the last 90 days Capital Group Core has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental drivers, Capital Group is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Ned Davis Research

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ned Davis Research has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Ned Davis 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 Group and Ned Davis

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

The idea behind Capital Group Core and Ned Davis Research 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.

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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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.