Correlation Between AB Low and AB Ultra

Can any of the company-specific risk be diversified away by investing in both AB Low and AB Ultra 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 Ultra 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 Ultra Short, you can compare the effects of market volatilities on AB Low and AB Ultra 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 Ultra. Check out your portfolio center. Please also check ongoing floating volatility patterns of AB Low and AB Ultra.

Diversification Opportunities for AB Low and AB Ultra

0.82

Correlation Coefficient

AB Low  AB Ultra

Very poor diversification

The 3 months correlation between LOWV and YEAR is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding AB Low Volatility and AB Ultra Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB Ultra Short 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 Ultra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AB Ultra Short has no effect on the direction of AB Low i.e., AB Low and AB Ultra go up and down completely randomly.

Pair Corralation between AB Low and AB Ultra

Given the investment horizon of 90 days AB Low Volatility is expected to generate 8.64 times more return on investment than AB Ultra. However, AB Low is 8.64 times more volatile than AB Ultra Short. It trades about 0.13 of its potential returns per unit of risk. AB Ultra Short is currently generating about 0.19 per unit of risk. If you would invest  6,899  in AB Low Volatility on September 12, 2024 and sell it today you would earn a total of  327.00  from holding AB Low Volatility or generate 4.74% return on investment over 90 days.

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

AB Low Volatility  vs.  AB Ultra Short

AB Low Volatility

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AB Low Volatility are ranked lower than 10 (%) 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.

AB Ultra Short

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AB Ultra Short are ranked lower than 14 (%) 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.

Pair Trading with AB Low and AB Ultra

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

The idea behind AB Low Volatility and AB Ultra Short 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.