Correlation Between Ab Small and Cavanal Hill

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

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

Diversification Opportunities for Ab Small and Cavanal Hill

0.93

Correlation Coefficient

Ab Small  Cavanal Hill

Almost no diversification

The 3 months correlation between QUAIX and Cavanal is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Ab Small Cap and Cavanal Hill Hedged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cavanal Hill Hedged and Ab Small 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 Small Cap are associated (or correlated) with Cavanal Hill. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cavanal Hill Hedged has no effect on the direction of Ab Small i.e., Ab Small and Cavanal Hill go up and down completely randomly.

Pair Corralation between Ab Small and Cavanal Hill

Assuming the 90 days horizon Ab Small Cap is expected to generate 2.53 times more return on investment than Cavanal Hill. However, Ab Small is 2.53 times more volatile than Cavanal Hill Hedged. It trades about 0.2 of its potential returns per unit of risk. Cavanal Hill Hedged is currently generating about 0.17 per unit of risk. 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 Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Ab Small Cap  vs.  Cavanal Hill Hedged

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.

Cavanal Hill Hedged

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cavanal Hill Hedged are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Cavanal Hill is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ab Small and Cavanal Hill

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

The idea behind Ab Small Cap and Cavanal Hill Hedged 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.