Correlation Between Ab Small and Mid Capitalization

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

Diversification Opportunities for Ab Small and Mid Capitalization

0.37

Correlation Coefficient

Ab Small  Mid Capitalization

Weak diversification

The 3 months correlation between QUAZX and Mid is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Ab Small Cap and Mid Capitalization Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Capitalization 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 Mid Capitalization. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid Capitalization has no effect on the direction of Ab Small i.e., Ab Small and Mid Capitalization go up and down completely randomly.

Pair Corralation between Ab Small and Mid Capitalization

Assuming the 90 days horizon Ab Small Cap is expected to generate 0.93 times more return on investment than Mid Capitalization. However, Ab Small Cap is 1.08 times less risky than Mid Capitalization. It trades about 0.06 of its potential returns per unit of risk. Mid Capitalization Portfolio is currently generating about 0.01 per unit of risk. If you would invest  5,508  in Ab Small Cap on October 10, 2024 and sell it today you would earn a total of  2,054  from holding Ab Small Cap or generate 37.29% return on investment over 90 days.

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

Ab Small Cap  vs.  Mid Capitalization Portfolio

Ab Small Cap

Risk-Adjusted Performance

3 of 100

Insignificant

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

Mid Capitalization

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mid Capitalization Portfolio 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 fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Ab Small and Mid Capitalization

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

The idea behind Ab Small Cap and Mid Capitalization Portfolio 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.