Correlation Between Ab Bond and Ab International

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

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

Diversification Opportunities for Ab Bond and Ab International

0.6

Correlation Coefficient

Ab Bond  Ab International

Poor diversification

The 3 months correlation between ABNTX and AWPAX is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Ab Bond Inflation and Ab International Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab International Growth and Ab Bond 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 Bond Inflation are associated (or correlated) with Ab International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab International Growth has no effect on the direction of Ab Bond i.e., Ab Bond and Ab International go up and down completely randomly.

Pair Corralation between Ab Bond and Ab International

Assuming the 90 days horizon Ab Bond is expected to generate 1.16 times less return on investment than Ab International. But when comparing it to its historical volatility, Ab Bond Inflation is 2.93 times less risky than Ab International. It trades about 0.06 of its potential returns per unit of risk. Ab International Growth is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,836  in Ab International Growth on October 25, 2024 and sell it today you would earn a total of  144.00  from holding Ab International Growth or generate 7.84% return on investment over 90 days.

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

Ab Bond Inflation  vs.  Ab International Growth

Ab Bond Inflation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ab Bond Inflation has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Ab Bond is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ab International Growth

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ab International Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Ab International 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 Bond and Ab International

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

The idea behind Ab Bond Inflation and Ab International Growth 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.