Correlation Between Capital World and Europacific Growth

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

Diversification Opportunities for Capital World and Europacific Growth

0.27

Correlation Coefficient

Capital World  Europacific Growth

Modest diversification

The 3 months correlation between Capital and Europacific is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Capital World Bond and Europacific Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Europacific Growth 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 Europacific Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Europacific Growth has no effect on the direction of Capital World i.e., Capital World and Europacific Growth go up and down completely randomly.

Pair Corralation between Capital World and Europacific Growth

Assuming the 90 days horizon Capital World is expected to generate 2.62 times less return on investment than Europacific Growth. But when comparing it to its historical volatility, Capital World Bond is 1.92 times less risky than Europacific Growth. It trades about 0.06 of its potential returns per unit of risk. Europacific Growth Fund is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  4,151  in Europacific Growth Fund on July 6, 2024 and sell it today you would earn a total of  1,779  from holding Europacific Growth Fund or generate 42.86% return on investment over 90 days.

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

Capital World Bond  vs.  Europacific Growth Fund

Capital World Bond

Risk-Adjusted Performance

14 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Capital World Bond are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. 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.

Europacific Growth

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Europacific Growth Fund are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Europacific Growth 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 Europacific Growth

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

The idea behind Capital World Bond and Europacific Growth Fund 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.