Correlation Between Ab Large and Ab Discovery

Can any of the company-specific risk be diversified away by investing in both Ab Large 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 Large 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 Large Cap and Ab Discovery Value, you can compare the effects of market volatilities on Ab Large 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 Large with a short position of Ab Discovery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ab Large and Ab Discovery.

Diversification Opportunities for Ab Large and Ab Discovery

0.86

Correlation Coefficient

Ab Large  Ab Discovery

Very poor diversification

The 3 months correlation between APGYX and ABSZX is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Ab Large Cap 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 Large 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 Large Cap 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 Large i.e., Ab Large and Ab Discovery go up and down completely randomly.

Pair Corralation between Ab Large and Ab Discovery

Assuming the 90 days horizon Ab Large is expected to generate 1.05 times less return on investment than Ab Discovery. But when comparing it to its historical volatility, Ab Large Cap is 1.2 times less risky than Ab Discovery. It trades about 0.19 of its potential returns per unit of risk. Ab Discovery Value is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2,253  in Ab Discovery Value on September 4, 2024 and sell it today you would earn a total of  262.00  from holding Ab Discovery Value or generate 11.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Ab Large Cap  vs.  Ab Discovery Value

Ab Large Cap

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ab Large Cap are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Ab Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Ab Discovery Value

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ab Discovery Value are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Ab Discovery may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ab Large and Ab Discovery

The main advantage of trading using opposite Ab Large and Ab Discovery positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ab Large 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 Large Cap 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.