Correlation Between Capital World and Six Circles

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

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

Diversification Opportunities for Capital World and Six Circles

0.19

Correlation Coefficient

Capital World  Six Circles

Average diversification

The 3 months correlation between Capital and Six is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Capital World Growth and Six Circles Managed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Six Circles Managed and Capital World 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 World Growth are associated (or correlated) with Six Circles. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Six Circles Managed has no effect on the direction of Capital World i.e., Capital World and Six Circles go up and down completely randomly.

Pair Corralation between Capital World and Six Circles

Assuming the 90 days horizon Capital World is expected to generate 1.99 times less return on investment than Six Circles. But when comparing it to its historical volatility, Capital World Growth is 1.02 times less risky than Six Circles. It trades about 0.06 of its potential returns per unit of risk. Six Circles Managed is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,521  in Six Circles Managed on October 24, 2024 and sell it today you would earn a total of  609.00  from holding Six Circles Managed or generate 40.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.74%
Values	Daily Returns

Capital World Growth  vs.  Six Circles Managed

Capital World Growth

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capital World Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Capital World is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Six Circles Managed

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Six Circles Managed are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Six Circles 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 World and Six Circles

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

The idea behind Capital World Growth and Six Circles Managed 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.