Correlation Between Small Cap and Ab Global

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

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

Diversification Opportunities for Small Cap and Ab Global

0.9

Correlation Coefficient

Small Cap  Ab Global

Almost no diversification

The 3 months correlation between Small and CABNX is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and Ab Global Risk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab Global Risk and Small Cap 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 Small Cap Core are associated (or correlated) with Ab Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab Global Risk has no effect on the direction of Small Cap i.e., Small Cap and Ab Global go up and down completely randomly.

Pair Corralation between Small Cap and Ab Global

Assuming the 90 days horizon Small Cap Core is expected to under-perform the Ab Global. But the mutual fund apears to be less risky and, when comparing its historical volatility, Small Cap Core is 1.15 times less risky than Ab Global. The mutual fund trades about -0.33 of its potential returns per unit of risk. The Ab Global Risk is currently generating about -0.25 of returns per unit of risk over similar time horizon. If you would invest  1,790  in Ab Global Risk on October 10, 2024 and sell it today you would lose (296.00) from holding Ab Global Risk or give up 16.54% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.24%
Values	Daily Returns

Small Cap Core  vs.  Ab Global Risk

Small Cap Core

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Cap Core has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Ab Global Risk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ab Global Risk 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 basic 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 Small Cap and Ab Global

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

The idea behind Small Cap Core and Ab Global Risk 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 Transaction History module to view history of all your transactions and understand their impact on performance.