Correlation Between Small Cap and Ab Conservative

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

Diversification Opportunities for Small Cap and Ab Conservative

0.81

Correlation Coefficient

Small Cap  Ab Conservative

Very poor diversification

The 3 months correlation between Small and APWIX is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and Ab Servative Wealth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab Servative Wealth 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 Conservative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab Servative Wealth has no effect on the direction of Small Cap i.e., Small Cap and Ab Conservative go up and down completely randomly.

Pair Corralation between Small Cap and Ab Conservative

Assuming the 90 days horizon Small Cap Core is expected to generate 1.93 times more return on investment than Ab Conservative. However, Small Cap is 1.93 times more volatile than Ab Servative Wealth. It trades about 0.15 of its potential returns per unit of risk. Ab Servative Wealth is currently generating about 0.17 per unit of risk. If you would invest  1,214  in Small Cap Core on October 25, 2024 and sell it today you would earn a total of  37.00  from holding Small Cap Core or generate 3.05% return on investment over 90 days.

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

Small Cap Core  vs.  Ab Servative Wealth

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 Servative Wealth

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Small Cap and Ab Conservative

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

The idea behind Small Cap Core and Ab Servative Wealth 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.