Correlation Between Capital Income and Morningstar Unconstrained

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

Diversification Opportunities for Capital Income and Morningstar Unconstrained

0.98

Correlation Coefficient

Capital Income  Morningstar Unconstrained

Almost no diversification

The 3 months correlation between Capital and Morningstar is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Capital Income Builder and Morningstar Unconstrained Allo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morningstar Unconstrained 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 Morningstar Unconstrained. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Morningstar Unconstrained has no effect on the direction of Capital Income i.e., Capital Income and Morningstar Unconstrained go up and down completely randomly.

Pair Corralation between Capital Income and Morningstar Unconstrained

Assuming the 90 days horizon Capital Income is expected to generate 1.23 times less return on investment than Morningstar Unconstrained. But when comparing it to its historical volatility, Capital Income Builder is 1.49 times less risky than Morningstar Unconstrained. It trades about 0.2 of its potential returns per unit of risk. Morningstar Unconstrained Allocation is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,085  in Morningstar Unconstrained Allocation on May 5, 2025 and sell it today you would earn a total of  73.00  from holding Morningstar Unconstrained Allocation or generate 6.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.41%
Values	Daily Returns

Capital Income Builder  vs.  Morningstar Unconstrained Allo

Capital Income Builder

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Income Builder are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. 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.

Morningstar Unconstrained

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Morningstar Unconstrained Allocation are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Morningstar Unconstrained may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Capital Income and Morningstar Unconstrained

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

The idea behind Capital Income Builder and Morningstar Unconstrained Allocation 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.