Correlation Between Hodges Small and Ab Discovery

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

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

Diversification Opportunities for Hodges Small and Ab Discovery

0.74

Correlation Coefficient

Hodges Small  Ab Discovery

Poor diversification

The 3 months correlation between Hodges and ABSKX is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Hodges Small Cap and Ab Discovery Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab Discovery Value and Hodges 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 Hodges Small Cap are associated (or correlated) with Ab Discovery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab Discovery Value has no effect on the direction of Hodges Small i.e., Hodges Small and Ab Discovery go up and down completely randomly.

Pair Corralation between Hodges Small and Ab Discovery

Assuming the 90 days horizon Hodges Small is expected to generate 5.49 times less return on investment than Ab Discovery. In addition to that, Hodges Small is 1.41 times more volatile than Ab Discovery Value. It trades about 0.03 of its total potential returns per unit of risk. Ab Discovery Value is currently generating about 0.27 per unit of volatility. If you would invest  2,129  in Ab Discovery Value on February 26, 2024 and sell it today you would earn a total of  89.00  from holding Ab Discovery Value or generate 4.18% return on investment over 90 days.

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

Hodges Small Cap  vs.  Ab Discovery Value

Hodges Small Cap

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hodges Small Cap are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Hodges Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ab Discovery Value

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ab Discovery Value are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward-looking signals, Ab Discovery is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hodges Small and Ab Discovery

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

The idea behind Hodges Small Cap and Ab Discovery Value 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.