Correlation Between Ab Relative and Ab Large

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

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

Diversification Opportunities for Ab Relative and Ab Large

0.89

Correlation Coefficient

Ab Relative  Ab Large

Very poor diversification

The 3 months correlation between CBBCX and APGCX is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Ab Relative Value and Ab Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab Large Cap and Ab Relative 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 Relative Value are associated (or correlated) with Ab Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab Large Cap has no effect on the direction of Ab Relative i.e., Ab Relative and Ab Large go up and down completely randomly.

Pair Corralation between Ab Relative and Ab Large

Assuming the 90 days horizon Ab Relative is expected to generate 1.69 times less return on investment than Ab Large. But when comparing it to its historical volatility, Ab Relative Value is 1.41 times less risky than Ab Large. It trades about 0.13 of its potential returns per unit of risk. Ab Large Cap is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  6,084  in Ab Large Cap on August 31, 2024 and sell it today you would earn a total of  555.00  from holding Ab Large Cap or generate 9.12% return on investment over 90 days.

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

Ab Relative Value  vs.  Ab Large Cap

Ab Relative Value

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ab Relative Value are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Ab Relative is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ab Large Cap

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ab Large Cap are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Ab Large may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Ab Relative and Ab Large

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

The idea behind Ab Relative Value and Ab Large 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.