Correlation Between Tax-managed and Ab Discovery

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

By analyzing existing cross correlation between Tax Managed Mid Small and Ab Discovery Growth, you can compare the effects of market volatilities on Tax-managed and Ab Discovery 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 Tax-managed with a short position of Ab Discovery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax-managed and Ab Discovery.

Diversification Opportunities for Tax-managed and Ab Discovery

0.92

Correlation Coefficient

Tax-managed  Ab Discovery

Almost no diversification

The 3 months correlation between Tax-managed and CHCYX is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Tax Managed Mid Small and Ab Discovery Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab Discovery Growth and Tax-managed 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 Tax Managed Mid Small are associated (or correlated) with Ab Discovery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab Discovery Growth has no effect on the direction of Tax-managed i.e., Tax-managed and Ab Discovery go up and down completely randomly.

Pair Corralation between Tax-managed and Ab Discovery

Assuming the 90 days horizon Tax-managed is expected to generate 1.7 times less return on investment than Ab Discovery. But when comparing it to its historical volatility, Tax Managed Mid Small is 1.03 times less risky than Ab Discovery. It trades about 0.03 of its potential returns per unit of risk. Ab Discovery Growth is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,013  in Ab Discovery Growth on October 4, 2024 and sell it today you would earn a total of  321.00  from holding Ab Discovery Growth or generate 31.69% return on investment over 90 days.

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

Tax Managed Mid Small  vs.  Ab Discovery Growth

Tax Managed Mid

Risk-Adjusted Performance

0 of 100

Very Weak

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

Ab Discovery Growth

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Tax-managed and Ab Discovery

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

The idea behind Tax Managed Mid Small and Ab Discovery Growth 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.