Correlation Between AB Ultra and AB Low

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

By analyzing existing cross correlation between AB Ultra Short and AB Low Volatility, you can compare the effects of market volatilities on AB Ultra and AB Low 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 Ultra with a short position of AB Low. Check out your portfolio center. Please also check ongoing floating volatility patterns of AB Ultra and AB Low.

Diversification Opportunities for AB Ultra and AB Low

0.11

Correlation Coefficient

AB Ultra  AB Low

Average diversification

The 3 months correlation between YEAR and LOWV is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding AB Ultra Short and AB Low Volatility in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB Low Volatility and AB Ultra 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 Ultra Short are associated (or correlated) with AB Low. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AB Low Volatility has no effect on the direction of AB Ultra i.e., AB Ultra and AB Low go up and down completely randomly.

Pair Corralation between AB Ultra and AB Low

Given the investment horizon of 90 days AB Ultra is expected to generate 2.12 times less return on investment than AB Low. But when comparing it to its historical volatility, AB Ultra Short is 13.74 times less risky than AB Low. It trades about 0.48 of its potential returns per unit of risk. AB Low Volatility is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  7,179  in AB Low Volatility on October 25, 2024 and sell it today you would earn a total of  61.00  from holding AB Low Volatility or generate 0.85% return on investment over 90 days.

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

AB Ultra Short  vs.  AB Low Volatility

AB Ultra Short

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in AB Ultra Short are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, AB Ultra is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

AB Low Volatility

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AB Low Volatility are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, AB Low is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with AB Ultra and AB Low

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

The idea behind AB Ultra Short and AB Low Volatility 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.