Correlation Between Ab Large and Ab Core

Can any of the company-specific risk be diversified away by investing in both Ab Large and Ab Core 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 Core 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 E Opportunities, you can compare the effects of market volatilities on Ab Large and Ab Core 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 Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ab Large and Ab Core.

Diversification Opportunities for Ab Large and Ab Core

0.86

Correlation Coefficient

Ab Large  Ab Core

Very poor diversification

The 3 months correlation between APGYX and ADGAX is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Ab Large Cap and Ab E Opportunities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab E Opportunities 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 Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab E Opportunities has no effect on the direction of Ab Large i.e., Ab Large and Ab Core go up and down completely randomly.

Pair Corralation between Ab Large and Ab Core

Assuming the 90 days horizon Ab Large Cap is expected to generate 0.95 times more return on investment than Ab Core. However, Ab Large Cap is 1.06 times less risky than Ab Core. It trades about -0.1 of its potential returns per unit of risk. Ab E Opportunities is currently generating about -0.12 per unit of risk. If you would invest  11,867  in Ab Large Cap on December 2, 2024 and sell it today you would lose (1,016) from holding Ab Large Cap or give up 8.56% of portfolio value over 90 days.

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

Ab Large Cap  vs.  Ab E Opportunities

Ab Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ab Large Cap 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 E Opportunities

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ab E Opportunities has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest fragile 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 Large and Ab Core

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

The idea behind Ab Large Cap and Ab E Opportunities 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.