Correlation Between Ab Servative and Emerging Markets

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

By analyzing existing cross correlation between Ab Servative Wealth and Emerging Markets Portfolio, you can compare the effects of market volatilities on Ab Servative and Emerging Markets 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 Servative with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ab Servative and Emerging Markets.

Diversification Opportunities for Ab Servative and Emerging Markets

0.72

Correlation Coefficient

Ab Servative  Emerging Markets

Poor diversification

The 3 months correlation between ABPYX and Emerging is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Ab Servative Wealth and Emerging Markets Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Por and Ab Servative 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 Servative Wealth are associated (or correlated) with Emerging Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerging Markets Por has no effect on the direction of Ab Servative i.e., Ab Servative and Emerging Markets go up and down completely randomly.

Pair Corralation between Ab Servative and Emerging Markets

Assuming the 90 days horizon Ab Servative Wealth is expected to under-perform the Emerging Markets. But the mutual fund apears to be less risky and, when comparing its historical volatility, Ab Servative Wealth is 1.15 times less risky than Emerging Markets. The mutual fund trades about -0.45 of its potential returns per unit of risk. The Emerging Markets Portfolio is currently generating about -0.27 of returns per unit of risk over similar time horizon. If you would invest  2,215  in Emerging Markets Portfolio on October 5, 2024 and sell it today you would lose (85.00) from holding Emerging Markets Portfolio or give up 3.84% of portfolio value over 90 days.

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

Ab Servative Wealth  vs.  Emerging Markets Portfolio

Ab Servative Wealth

Risk-Adjusted Performance

0 of 100

Very Weak

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

Emerging Markets Por

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Emerging Markets Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Ab Servative and Emerging Markets

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

The idea behind Ab Servative Wealth and Emerging Markets Portfolio 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.