Correlation Between Capital Income and Hartford Balanced

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

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

Diversification Opportunities for Capital Income and Hartford Balanced

0.79

Correlation Coefficient

Capital Income  Hartford Balanced

Poor diversification

The 3 months correlation between Capital and Hartford is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Capital Income Builder and The Hartford Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hartford Balanced and Capital Income 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 Income Builder are associated (or correlated) with Hartford Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hartford Balanced has no effect on the direction of Capital Income i.e., Capital Income and Hartford Balanced go up and down completely randomly.

Pair Corralation between Capital Income and Hartford Balanced

Assuming the 90 days horizon Capital Income is expected to generate 1.1 times less return on investment than Hartford Balanced. In addition to that, Capital Income is 1.85 times more volatile than The Hartford Balanced. It trades about 0.04 of its total potential returns per unit of risk. The Hartford Balanced is currently generating about 0.09 per unit of volatility. If you would invest  1,827  in The Hartford Balanced on September 24, 2024 and sell it today you would earn a total of  85.00  from holding The Hartford Balanced or generate 4.65% return on investment over 90 days.

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

Capital Income Builder  vs.  The Hartford Balanced

Capital Income Builder

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capital Income Builder has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Hartford Balanced

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Hartford Balanced has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Hartford Balanced 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 Income and Hartford Balanced

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

The idea behind Capital Income Builder and The Hartford Balanced 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.