Correlation Between Ab Select and Smallcap World

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Can any of the company-specific risk be diversified away by investing in both Ab Select and Smallcap World 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 Select and Smallcap World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ab Select Equity and Smallcap World Fund, you can compare the effects of market volatilities on Ab Select and Smallcap World 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 Select with a short position of Smallcap World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ab Select and Smallcap World.

Diversification Opportunities for Ab Select and Smallcap World

0.74
  Correlation Coefficient

Poor diversification

The 3 months correlation between AUUIX and Smallcap is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Ab Select Equity and Smallcap World Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap World and Ab Select 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 Select Equity are associated (or correlated) with Smallcap World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap World has no effect on the direction of Ab Select i.e., Ab Select and Smallcap World go up and down completely randomly.

Pair Corralation between Ab Select and Smallcap World

Assuming the 90 days horizon Ab Select Equity is expected to under-perform the Smallcap World. In addition to that, Ab Select is 2.22 times more volatile than Smallcap World Fund. It trades about -0.27 of its total potential returns per unit of risk. Smallcap World Fund is currently generating about -0.37 per unit of volatility. If you would invest  7,267  in Smallcap World Fund on October 10, 2024 and sell it today you would lose (438.00) from holding Smallcap World Fund or give up 6.03% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Ab Select Equity  vs.  Smallcap World Fund

 Performance 
       Timeline  
Ab Select Equity 

Risk-Adjusted Performance

0 of 100

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

Risk-Adjusted Performance

0 of 100

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

Ab Select and Smallcap World Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ab Select and Smallcap World

The main advantage of trading using opposite Ab Select and Smallcap World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ab Select position performs unexpectedly, Smallcap World 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 Smallcap World will offset losses from the drop in Smallcap World's long position.
The idea behind Ab Select Equity and Smallcap World Fund 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.

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