Correlation Between Capital Group and CBOE Crude

Can any of the company-specific risk be diversified away by investing in both Capital Group and CBOE Crude 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 CBOE Crude 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 CBOE Crude Oil, you can compare the effects of market volatilities on Capital Group and CBOE Crude 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 CBOE Crude. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Group and CBOE Crude.

Diversification Opportunities for Capital Group and CBOE Crude

-0.58

Correlation Coefficient

Capital Group  CBOE Crude

Excellent diversification

The 3 months correlation between Capital and CBOE is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Capital Group Core and CBOE Crude Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CBOE Crude Oil 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 CBOE Crude. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CBOE Crude Oil has no effect on the direction of Capital Group i.e., Capital Group and CBOE Crude go up and down completely randomly.

Pair Corralation between Capital Group and CBOE Crude

Given the investment horizon of 90 days Capital Group Core is expected to generate 0.11 times more return on investment than CBOE Crude. However, Capital Group Core is 9.0 times less risky than CBOE Crude. It trades about 0.07 of its potential returns per unit of risk. CBOE Crude Oil is currently generating about -0.03 per unit of risk. If you would invest  3,428  in Capital Group Core on September 29, 2024 and sell it today you would earn a total of  119.00  from holding Capital Group Core or generate 3.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Capital Group Core  vs.  CBOE Crude Oil

Pair Trading with Capital Group and CBOE Crude

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

The idea behind Capital Group Core and CBOE Crude Oil 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.