Correlation Between Wasatch Small and Capital Income

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

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

Diversification Opportunities for Wasatch Small and Capital Income

-0.17

Correlation Coefficient

Wasatch Small  Capital Income

Good diversification

The 3 months correlation between Wasatch and Capital is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Wasatch Small Cap and Capital Income Builder in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Income Builder and Wasatch Small 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 Wasatch Small Cap are associated (or correlated) with Capital Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Income Builder has no effect on the direction of Wasatch Small i.e., Wasatch Small and Capital Income go up and down completely randomly.

Pair Corralation between Wasatch Small and Capital Income

Assuming the 90 days horizon Wasatch Small Cap is expected to generate 2.15 times more return on investment than Capital Income. However, Wasatch Small is 2.15 times more volatile than Capital Income Builder. It trades about 0.08 of its potential returns per unit of risk. Capital Income Builder is currently generating about 0.06 per unit of risk. If you would invest  3,407  in Wasatch Small Cap on October 5, 2024 and sell it today you would earn a total of  849.00  from holding Wasatch Small Cap or generate 24.92% return on investment over 90 days.

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

Wasatch Small Cap  vs.  Capital Income Builder

Wasatch Small Cap

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wasatch Small Cap are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Wasatch Small may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 fairly strong fundamental indicators, Capital Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Wasatch Small and Capital Income

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

The idea behind Wasatch Small Cap and Capital Income Builder 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.