Correlation Between Ab International and Ab Relative

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

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

Diversification Opportunities for Ab International and Ab Relative

0.44

Correlation Coefficient

Ab International  Ab Relative

Very weak diversification

The 3 months correlation between AWPAX and CABDX is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Ab International Growth and Ab Relative Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab Relative Value and Ab International 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 International Growth are associated (or correlated) with Ab Relative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab Relative Value has no effect on the direction of Ab International i.e., Ab International and Ab Relative go up and down completely randomly.

Pair Corralation between Ab International and Ab Relative

Assuming the 90 days horizon Ab International is expected to generate 1.57 times less return on investment than Ab Relative. But when comparing it to its historical volatility, Ab International Growth is 1.06 times less risky than Ab Relative. It trades about 0.02 of its potential returns per unit of risk. Ab Relative Value is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  565.00  in Ab Relative Value on October 3, 2024 and sell it today you would earn a total of  55.00  from holding Ab Relative Value or generate 9.73% return on investment over 90 days.

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

Ab International Growth  vs.  Ab Relative Value

Ab International Growth

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ab International Growth 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 Relative Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ab Relative Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental 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 International and Ab Relative

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

The idea behind Ab International Growth and Ab Relative 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.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.