Correlation Between Fundamental Large and Capital World

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

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

Diversification Opportunities for Fundamental Large and Capital World

0.68

Correlation Coefficient

Fundamental Large  Capital World

Poor diversification

The 3 months correlation between FUNDAMENTAL and Capital is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Fundamental Large Cap and Capital World Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital World Growth and Fundamental Large 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 Fundamental Large Cap are associated (or correlated) with Capital World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital World Growth has no effect on the direction of Fundamental Large i.e., Fundamental Large and Capital World go up and down completely randomly.

Pair Corralation between Fundamental Large and Capital World

Assuming the 90 days horizon Fundamental Large Cap is expected to generate 1.15 times more return on investment than Capital World. However, Fundamental Large is 1.15 times more volatile than Capital World Growth. It trades about 0.11 of its potential returns per unit of risk. Capital World Growth is currently generating about 0.1 per unit of risk. If you would invest  5,852  in Fundamental Large Cap on September 1, 2024 and sell it today you would earn a total of  2,396  from holding Fundamental Large Cap or generate 40.94% return on investment over 90 days.

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

Fundamental Large Cap  vs.  Capital World Growth

Fundamental Large Cap

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fundamental Large Cap are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Fundamental Large may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Capital World Growth

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Capital World Growth are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. 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.

Pair Trading with Fundamental Large and Capital World

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

The idea behind Fundamental Large Cap and Capital World Growth 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.