Correlation Between Diversified International and Ab Small

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

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

Diversification Opportunities for Diversified International and Ab Small

-0.37

Correlation Coefficient

Diversified International  Ab Small

Very good diversification

The 3 months correlation between Diversified and QUAIX is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Diversified International Fund and Ab Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab Small Cap and Diversified International 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 Diversified International Fund are associated (or correlated) with Ab Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab Small Cap has no effect on the direction of Diversified International i.e., Diversified International and Ab Small go up and down completely randomly.

Pair Corralation between Diversified International and Ab Small

Assuming the 90 days horizon Diversified International Fund is expected to under-perform the Ab Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Diversified International Fund is 1.4 times less risky than Ab Small. The mutual fund trades about -0.03 of its potential returns per unit of risk. The Ab Small Cap is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  6,819  in Ab Small Cap on September 4, 2024 and sell it today you would earn a total of  1,091  from holding Ab Small Cap or generate 16.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Diversified International Fund  vs.  Ab Small Cap

Diversified International

Risk-Adjusted Performance

0 of 100

Very Weak

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

Ab Small Cap

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ab Small Cap are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Ab Small showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Diversified International and Ab Small

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

The idea behind Diversified International Fund and Ab Small Cap 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.