Correlation Between Ab Sustainable and Ab California

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

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

Diversification Opportunities for Ab Sustainable and Ab California

0.87

Correlation Coefficient

Ab Sustainable  Ab California

Very poor diversification

The 3 months correlation between STHYX and ALCAX is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Ab Sustainable Thematic and Ab California Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab California Portfolio and Ab Sustainable 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 Sustainable Thematic are associated (or correlated) with Ab California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab California Portfolio has no effect on the direction of Ab Sustainable i.e., Ab Sustainable and Ab California go up and down completely randomly.

Pair Corralation between Ab Sustainable and Ab California

Assuming the 90 days horizon Ab Sustainable Thematic is expected to under-perform the Ab California. In addition to that, Ab Sustainable is 1.41 times more volatile than Ab California Portfolio. It trades about -0.22 of its total potential returns per unit of risk. Ab California Portfolio is currently generating about -0.26 per unit of volatility. If you would invest  1,061  in Ab California Portfolio on September 26, 2024 and sell it today you would lose (14.00) from holding Ab California Portfolio or give up 1.32% of portfolio value over 90 days.

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

Ab Sustainable Thematic  vs.  Ab California Portfolio

Ab Sustainable Thematic

Risk-Adjusted Performance

0 of 100

Very Weak

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

Ab California Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Ab Sustainable and Ab California

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

The idea behind Ab Sustainable Thematic and Ab California Portfolio 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.