Correlation Between AB Low and AB High

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

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

Diversification Opportunities for AB Low and AB High

0.97

Correlation Coefficient

AB Low  AB High

Almost no diversification

The 3 months correlation between LOWV and HIDV is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding AB Low Volatility and AB High Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB High Dividend and AB Low 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 Low Volatility are associated (or correlated) with AB High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AB High Dividend has no effect on the direction of AB Low i.e., AB Low and AB High go up and down completely randomly.

Pair Corralation between AB Low and AB High

Given the investment horizon of 90 days AB Low is expected to generate 1.47 times less return on investment than AB High. But when comparing it to its historical volatility, AB Low Volatility is 1.07 times less risky than AB High. It trades about 0.15 of its potential returns per unit of risk. AB High Dividend is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  6,879  in AB High Dividend on September 4, 2024 and sell it today you would earn a total of  613.00  from holding AB High Dividend or generate 8.91% return on investment over 90 days.

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

AB Low Volatility  vs.  AB High Dividend

AB Low Volatility

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AB Low Volatility are ranked lower than 11 (%) 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 recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

AB High Dividend

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in AB High Dividend are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady fundamental indicators, AB High may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with AB Low and AB High

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

The idea behind AB Low Volatility and AB High Dividend 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.