Correlation Between Ab All and Ab Small

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

Diversification Opportunities for Ab All and Ab Small

0.86

Correlation Coefficient

Ab All  Ab Small

Very poor diversification

The 3 months correlation between AMTAX and QUAIX is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Ab All Market and Ab Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab Small 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 Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab Small Cap has no effect on the direction of Ab All i.e., Ab All and Ab Small go up and down completely randomly.

Pair Corralation between Ab All and Ab Small

Assuming the 90 days horizon Ab All is expected to generate 3.31 times less return on investment than Ab Small. But when comparing it to its historical volatility, Ab All Market is 1.96 times less risky than Ab Small. It trades about 0.15 of its potential returns per unit of risk. Ab Small Cap is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  6,497  in Ab Small Cap on August 12, 2024 and sell it today you would earn a total of  1,433  from holding Ab Small Cap or generate 22.06% return on investment over 90 days.

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

Ab All Market  vs.  Ab Small 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 Small Cap

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ab Small Cap are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Ab Small showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ab All and Ab Small

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

The idea behind Ab All Market and Ab Small 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.

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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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..