Correlation Between Capital World and Europac International

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

By analyzing existing cross correlation between Capital World Bond and Europac International Bond, you can compare the effects of market volatilities on Capital World and Europac International 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 Europac International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital World and Europac International.

Diversification Opportunities for Capital World and Europac International

0.91

Correlation Coefficient

Capital World  Europac International

Almost no diversification

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

Pair Corralation between Capital World and Europac International

Assuming the 90 days horizon Capital World Bond is expected to under-perform the Europac International. But the mutual fund apears to be less risky and, when comparing its historical volatility, Capital World Bond is 1.3 times less risky than Europac International. The mutual fund trades about -0.16 of its potential returns per unit of risk. The Europac International Bond is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  886.00  in Europac International Bond on September 12, 2024 and sell it today you would lose (22.00) from holding Europac International Bond or give up 2.48% of portfolio value over 90 days.

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

Capital World Bond  vs.  Europac International Bond

Capital World Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Europac International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Europac International Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Europac International 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 Europac International

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

The idea behind Capital World Bond and Europac International Bond 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.

Check out your portfolio center.

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 Commodity Directory module to find actively traded commodities issued by global exchanges.