Correlation Between High Income and Capital Growth
Can any of the company-specific risk be diversified away by investing in both High Income and Capital 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 High Income and Capital Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between High Income Fund and Capital Growth Fund, you can compare the effects of market volatilities on High Income and Capital 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 High Income with a short position of Capital Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of High Income and Capital Growth.
Diversification Opportunities for High Income and Capital Growth
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between High and Capital is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding High Income Fund and Capital Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Growth and High 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 High Income Fund are associated (or correlated) with Capital Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Growth has no effect on the direction of High Income i.e., High Income and Capital Growth go up and down completely randomly.
Pair Corralation between High Income and Capital Growth
Assuming the 90 days horizon High Income is expected to generate 3.1 times less return on investment than Capital Growth. But when comparing it to its historical volatility, High Income Fund is 4.25 times less risky than Capital Growth. It trades about 0.42 of its potential returns per unit of risk. Capital Growth Fund is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest 1,259 in Capital Growth Fund on April 25, 2025 and sell it today you would earn a total of 157.00 from holding Capital Growth Fund or generate 12.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
High Income Fund vs. Capital Growth Fund
Performance |
| Timeline |
| High Income Fund |
| Capital Growth |
High Income and Capital Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with High Income and Capital Growth
The main advantage of trading using opposite High Income and Capital Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if High Income position performs unexpectedly, Capital 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 Capital Growth will offset losses from the drop in Capital Growth's long position.| High Income vs. High Yield Portfolio | High Income vs. High Yield Portfolio | High Income vs. High Yield Portfolio | High Income vs. High Income Fund |
| Capital Growth vs. Vanguard Information Technology | Capital Growth vs. Blackrock Science Technology | Capital Growth vs. Firsthand Technology Opportunities | Capital Growth vs. Nationwide Bailard Technology |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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