Correlation Between Ab Small and Profunds Large

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

Diversification Opportunities for Ab Small and Profunds Large

0.61

Correlation Coefficient

Ab Small  Profunds Large

Poor diversification

The 3 months correlation between SCYVX and Profunds is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Ab Small Cap and Profunds Large Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Profunds Large Cap 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 Profunds Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Profunds Large Cap has no effect on the direction of Ab Small i.e., Ab Small and Profunds Large go up and down completely randomly.

Pair Corralation between Ab Small and Profunds Large

Assuming the 90 days horizon Ab Small is expected to generate 3.33 times less return on investment than Profunds Large. In addition to that, Ab Small is 1.28 times more volatile than Profunds Large Cap Growth. It trades about 0.03 of its total potential returns per unit of risk. Profunds Large Cap Growth is currently generating about 0.12 per unit of volatility. If you would invest  2,103  in Profunds Large Cap Growth on September 26, 2024 and sell it today you would earn a total of  1,547  from holding Profunds Large Cap Growth or generate 73.56% return on investment over 90 days.

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

Ab Small Cap  vs.  Profunds Large Cap Growth

Ab Small Cap

Risk-Adjusted Performance

0 of 100

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 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.

Profunds Large Cap

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Profunds Large Cap Growth are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Profunds Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ab Small and Profunds Large

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

The idea behind Ab Small Cap and Profunds Large Cap 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.

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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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.