Correlation Between Ab Small and Nationwide Government

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

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

Diversification Opportunities for Ab Small and Nationwide Government

-0.7

Correlation Coefficient

Ab Small  Nationwide Government

Excellent diversification

The 3 months correlation between QUAIX and Nationwide is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Ab Small Cap and Nationwide Government Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nationwide Government and Ab Small 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 Small Cap are associated (or correlated) with Nationwide Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nationwide Government has no effect on the direction of Ab Small i.e., Ab Small and Nationwide Government go up and down completely randomly.

Pair Corralation between Ab Small and Nationwide Government

Assuming the 90 days horizon Ab Small Cap is expected to under-perform the Nationwide Government. In addition to that, Ab Small is 17.67 times more volatile than Nationwide Government Bond. It trades about -0.13 of its total potential returns per unit of risk. Nationwide Government Bond is currently generating about 0.05 per unit of volatility. If you would invest  1,043  in Nationwide Government Bond on December 30, 2024 and sell it today you would earn a total of  3.00  from holding Nationwide Government Bond or generate 0.29% return on investment over 90 days.

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

Ab Small Cap  vs.  Nationwide Government Bond

Ab Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ab Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Nationwide Government

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nationwide Government Bond are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Nationwide Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ab Small and Nationwide Government

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

The idea behind Ab Small Cap and Nationwide Government 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.

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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.