Correlation Between Small Cap and Ab Intermediate

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

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

Diversification Opportunities for Small Cap and Ab Intermediate

0.49

Correlation Coefficient

Small Cap  Ab Intermediate

Very weak diversification

The 3 months correlation between Small and ABQZX is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Ab Intermediate Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab Intermediate Bond 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 Equity are associated (or correlated) with Ab Intermediate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab Intermediate Bond has no effect on the direction of Small Cap i.e., Small Cap and Ab Intermediate go up and down completely randomly.

Pair Corralation between Small Cap and Ab Intermediate

Assuming the 90 days horizon Small Cap Equity is expected to generate 4.45 times more return on investment than Ab Intermediate. However, Small Cap is 4.45 times more volatile than Ab Intermediate Bond. It trades about 0.19 of its potential returns per unit of risk. Ab Intermediate Bond is currently generating about -0.21 per unit of risk. If you would invest  1,789  in Small Cap Equity on October 22, 2024 and sell it today you would earn a total of  56.00  from holding Small Cap Equity or generate 3.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.44%
Values	Daily Returns

Small Cap Equity  vs.  Ab Intermediate Bond

Small Cap Equity

Risk-Adjusted Performance

0 of 100

Very Weak

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

Ab Intermediate Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Small Cap and Ab Intermediate

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

The idea behind Small Cap Equity and Ab Intermediate Bond 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.