Correlation Between Ab International and Ab Small

Can any of the company-specific risk be diversified away by investing in both Ab 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 Ab 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 Ab International Value and Ab Small Cap, you can compare the effects of market volatilities on Ab 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 Ab International with a short position of Ab Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ab International and Ab Small.

Diversification Opportunities for Ab International and Ab Small

-0.68

Correlation Coefficient

Ab International  Ab Small

Excellent diversification

The 3 months correlation between ABIYX and QUACX is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Ab International Value 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 Ab 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 Ab International Value 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 Ab International i.e., Ab International and Ab Small go up and down completely randomly.

Pair Corralation between Ab International and Ab Small

Assuming the 90 days horizon Ab International Value is expected to under-perform the Ab Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Ab International Value is 1.16 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 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,887  in Ab Small Cap on September 15, 2024 and sell it today you would earn a total of  40.00  from holding Ab Small Cap or generate 1.39% return on investment over 90 days.

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

Ab International Value  vs.  Ab Small Cap

Ab International Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ab International Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Ab Small Cap

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ab Small Cap are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Ab Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ab International and Ab Small

The main advantage of trading using opposite Ab International and Ab Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ab 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 Ab International Value 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.