Correlation Between Ab Value and Ab Discovery

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

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

Diversification Opportunities for Ab Value and Ab Discovery

0.96

Correlation Coefficient

Ab Value  Ab Discovery

Almost no diversification

The 3 months correlation between ABVAX and ABASX is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Ab Value Fund and Ab Discovery Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab Discovery Value and Ab Value 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 Value Fund are associated (or correlated) with Ab Discovery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab Discovery Value has no effect on the direction of Ab Value i.e., Ab Value and Ab Discovery go up and down completely randomly.

Pair Corralation between Ab Value and Ab Discovery

Assuming the 90 days horizon Ab Value Fund is expected to under-perform the Ab Discovery. But the mutual fund apears to be less risky and, when comparing its historical volatility, Ab Value Fund is 1.2 times less risky than Ab Discovery. The mutual fund trades about -0.1 of its potential returns per unit of risk. The Ab Discovery Value is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  2,326  in Ab Discovery Value on October 3, 2024 and sell it today you would lose (252.00) from holding Ab Discovery Value or give up 10.83% of portfolio value over 90 days.

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

Ab Value Fund  vs.  Ab Discovery Value

Ab Value Fund

Risk-Adjusted Performance

0 of 100

Very Weak

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

Ab Discovery Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ab Discovery Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic 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 Value and Ab Discovery

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

The idea behind Ab Value Fund and Ab Discovery Value 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.