Correlation Between Small Cap and Ab Small

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

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

Diversification Opportunities for Small Cap and Ab Small

0.92

Correlation Coefficient

Small Cap  Ab Small

Almost no diversification

The 3 months correlation between SMALL and QUAIX is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value and Ab Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab Small Cap and Small Cap 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 Small Cap Value are associated (or correlated) with Ab Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab Small Cap has no effect on the direction of Small Cap i.e., Small Cap and Ab Small go up and down completely randomly.

Pair Corralation between Small Cap and Ab Small

Assuming the 90 days horizon Small Cap is expected to generate 1.42 times less return on investment than Ab Small. In addition to that, Small Cap is 1.08 times more volatile than Ab Small Cap. It trades about 0.13 of its total potential returns per unit of risk. Ab Small Cap is currently generating about 0.2 per unit of volatility. If you would invest  6,809  in Ab Small Cap on September 3, 2024 and sell it today you would earn a total of  1,101  from holding Ab Small Cap or generate 16.17% return on investment over 90 days.

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

Small Cap Value  vs.  Ab Small Cap

Small Cap Value

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Value are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Ab Small Cap

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ab Small Cap are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Ab Small showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Small Cap and Ab Small

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

The idea behind Small Cap Value and Ab Small Cap 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.