Correlation Between Clearfield and Capital Income

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

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

Diversification Opportunities for Clearfield and Capital Income

0.41

Correlation Coefficient

Clearfield  Capital Income

Very weak diversification

The 3 months correlation between Clearfield and Capital is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Clearfield and Capital Income Builder in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Income Builder and Clearfield 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 Clearfield are associated (or correlated) with Capital Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Income Builder has no effect on the direction of Clearfield i.e., Clearfield and Capital Income go up and down completely randomly.

Pair Corralation between Clearfield and Capital Income

Given the investment horizon of 90 days Clearfield is expected to under-perform the Capital Income. In addition to that, Clearfield is 6.47 times more volatile than Capital Income Builder. It trades about -0.09 of its total potential returns per unit of risk. Capital Income Builder is currently generating about 0.06 per unit of volatility. If you would invest  7,214  in Capital Income Builder on September 1, 2024 and sell it today you would earn a total of  115.00  from holding Capital Income Builder or generate 1.59% return on investment over 90 days.

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

Clearfield  vs.  Capital Income Builder

Clearfield

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Clearfield has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Capital Income Builder

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Income Builder are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Capital Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Clearfield and Capital Income

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

The idea behind Clearfield and Capital Income Builder 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.