Correlation Between Ab Small and Large Cap

Can any of the company-specific risk be diversified away by investing in both Ab Small and Large Cap 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 Large Cap 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 Large Cap Value, you can compare the effects of market volatilities on Ab Small and Large Cap 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 Large Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ab Small and Large Cap.

Diversification Opportunities for Ab Small and Large Cap

0.74

Correlation Coefficient

Ab Small  Large Cap

Poor diversification

The 3 months correlation between QUAIX and Large is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Ab Small Cap and Large Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap Value 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 Large Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap Value has no effect on the direction of Ab Small i.e., Ab Small and Large Cap go up and down completely randomly.

Pair Corralation between Ab Small and Large Cap

Assuming the 90 days horizon Ab Small Cap is expected to under-perform the Large Cap. In addition to that, Ab Small is 1.65 times more volatile than Large Cap Value. It trades about -0.13 of its total potential returns per unit of risk. Large Cap Value is currently generating about -0.02 per unit of volatility. If you would invest  2,596  in Large Cap Value on December 29, 2024 and sell it today you would lose (40.00) from holding Large Cap Value or give up 1.54% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Ab Small Cap  vs.  Large Cap Value

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.

Large Cap Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days Large Cap Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Large Cap 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 Large Cap

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

The idea behind Ab Small Cap and Large Cap 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.

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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.