Correlation Between Small Capitalization and Ab Bond

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

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

Diversification Opportunities for Small Capitalization and Ab Bond

0.49

Correlation Coefficient

Small Capitalization  Ab Bond

Very weak diversification

The 3 months correlation between Small and ABNCX is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Small Capitalization Portfolio and Ab Bond Inflation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab Bond Inflation and Small Capitalization 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 Capitalization Portfolio are associated (or correlated) with Ab Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab Bond Inflation has no effect on the direction of Small Capitalization i.e., Small Capitalization and Ab Bond go up and down completely randomly.

Pair Corralation between Small Capitalization and Ab Bond

Assuming the 90 days horizon Small Capitalization Portfolio is expected to generate 4.93 times more return on investment than Ab Bond. However, Small Capitalization is 4.93 times more volatile than Ab Bond Inflation. It trades about 0.02 of its potential returns per unit of risk. Ab Bond Inflation is currently generating about 0.03 per unit of risk. If you would invest  528.00  in Small Capitalization Portfolio on October 10, 2024 and sell it today you would earn a total of  63.00  from holding Small Capitalization Portfolio or generate 11.93% return on investment over 90 days.

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

Small Capitalization Portfolio  vs.  Ab Bond Inflation

Small Capitalization

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Capitalization Portfolio 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 Bond Inflation

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Small Capitalization and Ab Bond

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

The idea behind Small Capitalization Portfolio and Ab Bond Inflation 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.