Correlation Between Growth Opportunities and Ab Value

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

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

Diversification Opportunities for Growth Opportunities and Ab Value

0.76

Correlation Coefficient

Growth Opportunities  Ab Value

Poor diversification

The 3 months correlation between Growth and ABVCX is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Growth Opportunities Fund and Ab Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab Value Fund and Growth Opportunities 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 Growth Opportunities Fund are associated (or correlated) with Ab Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab Value Fund has no effect on the direction of Growth Opportunities i.e., Growth Opportunities and Ab Value go up and down completely randomly.

Pair Corralation between Growth Opportunities and Ab Value

Assuming the 90 days horizon Growth Opportunities Fund is expected to generate 0.82 times more return on investment than Ab Value. However, Growth Opportunities Fund is 1.22 times less risky than Ab Value. It trades about -0.07 of its potential returns per unit of risk. Ab Value Fund is currently generating about -0.15 per unit of risk. If you would invest  5,856  in Growth Opportunities Fund on November 29, 2024 and sell it today you would lose (328.00) from holding Growth Opportunities Fund or give up 5.6% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

Growth Opportunities Fund  vs.  Ab Value Fund

Growth Opportunities

Risk-Adjusted Performance

Very Weak

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

Ab Value Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ab Value Fund 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 fundamental indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Growth Opportunities and Ab Value

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

The idea behind Growth Opportunities Fund and Ab Value Fund 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.