Correlation Between Small Cap and Ab Value

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

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

Diversification Opportunities for Small Cap and Ab Value

0.89

Correlation Coefficient

Small Cap  Ab Value

Very poor diversification

The 3 months correlation between Small and ABVCX is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and Ab Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab Value Fund and Small Cap 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 Small Cap Core are associated (or correlated) with Ab Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab Value Fund has no effect on the direction of Small Cap i.e., Small Cap and Ab Value go up and down completely randomly.

Pair Corralation between Small Cap and Ab Value

Assuming the 90 days horizon Small Cap is expected to generate 1.04 times less return on investment than Ab Value. In addition to that, Small Cap is 1.87 times more volatile than Ab Value Fund. It trades about 0.1 of its total potential returns per unit of risk. Ab Value Fund is currently generating about 0.2 per unit of volatility. If you would invest  1,898  in Ab Value Fund on August 30, 2024 and sell it today you would earn a total of  172.00  from holding Ab Value Fund or generate 9.06% return on investment over 90 days.

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

Small Cap Core  vs.  Ab Value Fund

Small Cap Core

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Core are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small Cap may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Ab Value Fund

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ab Value Fund are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Ab Value may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Small Cap and Ab Value

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

The idea behind Small Cap Core and Ab Value Fund 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.