Correlation Between Ab Global and Ab California

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

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

Diversification Opportunities for Ab Global and Ab California

0.88

Correlation Coefficient

Ab Global  Ab California

Very poor diversification

The 3 months correlation between ANACX and ALCAX is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Ab Global Bond and Ab California Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab California Portfolio and Ab Global 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 Global Bond are associated (or correlated) with Ab California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab California Portfolio has no effect on the direction of Ab Global i.e., Ab Global and Ab California go up and down completely randomly.

Pair Corralation between Ab Global and Ab California

Assuming the 90 days horizon Ab Global Bond is expected to under-perform the Ab California. But the mutual fund apears to be less risky and, when comparing its historical volatility, Ab Global Bond is 1.09 times less risky than Ab California. The mutual fund trades about -0.14 of its potential returns per unit of risk. The Ab California Portfolio is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  1,065  in Ab California Portfolio on September 26, 2024 and sell it today you would lose (18.00) from holding Ab California Portfolio or give up 1.69% of portfolio value over 90 days.

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

Ab Global Bond  vs.  Ab California Portfolio

Ab Global Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Ab California Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Ab Global Bond and Ab California 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.