Correlation Between Adams Natural and Ab Small

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

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

Diversification Opportunities for Adams Natural and Ab Small

0.26

Correlation Coefficient

Adams Natural  Ab Small

Modest diversification

The 3 months correlation between Adams and QUAIX is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Adams Natural Resources 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 Adams Natural 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 Adams Natural Resources 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 Adams Natural i.e., Adams Natural and Ab Small go up and down completely randomly.

Pair Corralation between Adams Natural and Ab Small

Considering the 90-day investment horizon Adams Natural is expected to generate 6.03 times less return on investment than Ab Small. But when comparing it to its historical volatility, Adams Natural Resources is 1.3 times less risky than Ab Small. It trades about 0.01 of its potential returns per unit of risk. Ab Small Cap is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  5,948  in Ab Small Cap on September 28, 2024 and sell it today you would earn a total of  1,538  from holding Ab Small Cap or generate 25.86% return on investment over 90 days.

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

Adams Natural Resources  vs.  Ab Small Cap

Adams Natural Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Adams Natural Resources has generated negative risk-adjusted returns adding no value to fund investors. In spite of very healthy technical and fundamental indicators, Adams Natural is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Ab Small Cap

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ab Small Cap are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Ab Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Adams Natural and Ab Small

The main advantage of trading using opposite Adams Natural and Ab Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Adams Natural 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 Adams Natural Resources 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.