Correlation Between Ab All and Ab Large

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

By analyzing existing cross correlation between Ab All Market and Ab Large Cap, you can compare the effects of market volatilities on Ab All and Ab Large 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 Ab All with a short position of Ab Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ab All and Ab Large.

Diversification Opportunities for Ab All and Ab Large

0.5

Correlation Coefficient

Ab All  Ab Large

Very weak diversification

The 3 months correlation between AMTOX and APGAX is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Ab All Market and Ab Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab Large Cap and Ab All 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 Ab All Market are associated (or correlated) with Ab Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab Large Cap has no effect on the direction of Ab All i.e., Ab All and Ab Large go up and down completely randomly.

Pair Corralation between Ab All and Ab Large

Assuming the 90 days horizon Ab All Market is expected to generate 0.6 times more return on investment than Ab Large. However, Ab All Market is 1.68 times less risky than Ab Large. It trades about -0.1 of its potential returns per unit of risk. Ab Large Cap is currently generating about -0.08 per unit of risk. If you would invest  887.00  in Ab All Market on February 5, 2024 and sell it today you would lose (13.00) from holding Ab All Market or give up 1.47% of portfolio value over 90 days.

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

Ab All Market  vs.  Ab Large Cap

Ab All Market

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ab All Market are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Ab All is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ab Large Cap

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ab Large Cap are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Ab Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ab All and Ab Large

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

The idea behind Ab All Market and Ab Large Cap 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.