Correlation Between Ab High and Large Cap

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

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

Diversification Opportunities for Ab High and Large Cap

-0.2

Correlation Coefficient

Ab High  Large Cap

Good diversification

The 3 months correlation between AGDIX and Large is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Ab High Income and Large Cap E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap E and Ab High 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 High Income are associated (or correlated) with Large Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap E has no effect on the direction of Ab High i.e., Ab High and Large Cap go up and down completely randomly.

Pair Corralation between Ab High and Large Cap

Assuming the 90 days horizon Ab High Income is expected to generate 0.08 times more return on investment than Large Cap. However, Ab High Income is 13.16 times less risky than Large Cap. It trades about 0.17 of its potential returns per unit of risk. Large Cap E is currently generating about -0.09 per unit of risk. If you would invest  691.00  in Ab High Income on October 25, 2024 and sell it today you would earn a total of  14.00  from holding Ab High Income or generate 2.03% return on investment over 90 days.

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

Ab High Income  vs.  Large Cap E

Ab High Income

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ab High Income are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Ab High is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Large Cap E

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Large Cap E has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Ab High and Large Cap

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

The idea behind Ab High Income and Large Cap E 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.