Correlation Between Ned Davis and Capital Group

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

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

Diversification Opportunities for Ned Davis and Capital Group

0.91

Correlation Coefficient

Ned Davis  Capital Group

Almost no diversification

The 3 months correlation between Ned and Capital is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Ned Davis Research and Capital Group Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Group Core and Ned Davis 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 Ned Davis Research are associated (or correlated) with Capital Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Group Core has no effect on the direction of Ned Davis i.e., Ned Davis and Capital Group go up and down completely randomly.

Pair Corralation between Ned Davis and Capital Group

Given the investment horizon of 90 days Ned Davis Research is expected to under-perform the Capital Group. But the etf apears to be less risky and, when comparing its historical volatility, Ned Davis Research is 1.08 times less risky than Capital Group. The etf trades about -0.18 of its potential returns per unit of risk. The Capital Group Core is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  3,202  in Capital Group Core on October 8, 2024 and sell it today you would lose (55.00) from holding Capital Group Core or give up 1.72% of portfolio value over 90 days.

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

Ned Davis Research  vs.  Capital Group Core

Ned Davis Research

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ned Davis Research has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Ned Davis is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Capital Group Core

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Group Core are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, Capital Group is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Ned Davis and Capital Group

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

The idea behind Ned Davis Research and Capital Group Core 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.