Correlation Between Capital World and Portfolio

Can any of the company-specific risk be diversified away by investing in both Capital World and Portfolio 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 Portfolio 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 Portfolio 21 Global, you can compare the effects of market volatilities on Capital World and Portfolio 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 Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital World and Portfolio.

Diversification Opportunities for Capital World and Portfolio

0.9

Correlation Coefficient

Capital World  Portfolio

Almost no diversification

The 3 months correlation between Capital and Portfolio is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Capital World Growth and Portfolio 21 Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Portfolio 21 Global 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 Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Portfolio 21 Global has no effect on the direction of Capital World i.e., Capital World and Portfolio go up and down completely randomly.

Pair Corralation between Capital World and Portfolio

Assuming the 90 days horizon Capital World Growth is expected to generate 1.01 times more return on investment than Portfolio. However, Capital World is 1.01 times more volatile than Portfolio 21 Global. It trades about 0.0 of its potential returns per unit of risk. Portfolio 21 Global is currently generating about -0.04 per unit of risk. If you would invest  6,355  in Capital World Growth on December 30, 2024 and sell it today you would lose (11.00) from holding Capital World Growth or give up 0.17% of portfolio value over 90 days.

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

Capital World Growth  vs.  Portfolio 21 Global

Capital World Growth

Risk-Adjusted Performance

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.

Portfolio 21 Global

Risk-Adjusted Performance

Very Weak

Over the last 90 days Portfolio 21 Global has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Portfolio 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 Portfolio

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

The idea behind Capital World Growth and Portfolio 21 Global 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.