Correlation Between Capital Income and Vanguard Financials

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

By analyzing existing cross correlation between Capital Income Builder and Vanguard Financials Index, you can compare the effects of market volatilities on Capital Income and Vanguard Financials 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 Income with a short position of Vanguard Financials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Income and Vanguard Financials.

Diversification Opportunities for Capital Income and Vanguard Financials

0.42

Correlation Coefficient

Capital Income  Vanguard Financials

Very weak diversification

The 3 months correlation between Capital and Vanguard is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Capital Income Builder and Vanguard Financials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Financials Index and Capital Income 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 Income Builder are associated (or correlated) with Vanguard Financials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Financials Index has no effect on the direction of Capital Income i.e., Capital Income and Vanguard Financials go up and down completely randomly.

Pair Corralation between Capital Income and Vanguard Financials

Assuming the 90 days horizon Capital Income Builder is expected to generate 0.52 times more return on investment than Vanguard Financials. However, Capital Income Builder is 1.93 times less risky than Vanguard Financials. It trades about 0.14 of its potential returns per unit of risk. Vanguard Financials Index is currently generating about 0.02 per unit of risk. If you would invest  6,900  in Capital Income Builder on December 21, 2024 and sell it today you would earn a total of  343.00  from holding Capital Income Builder or generate 4.97% return on investment over 90 days.

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

Capital Income Builder  vs.  Vanguard Financials Index

Capital Income Builder

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Income Builder are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Capital Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Financials Index

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Financials Index are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Vanguard Financials 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 Income and Vanguard Financials

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

The idea behind Capital Income Builder and Vanguard Financials Index 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 Transaction History module to view history of all your transactions and understand their impact on performance.