Correlation Between Ab Discovery and Small Cap

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

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

Diversification Opportunities for Ab Discovery and Small Cap

0.64

Correlation Coefficient

Ab Discovery  Small Cap

Poor diversification

The 3 months correlation between CHCYX and Small is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Ab Discovery Growth and Small Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value and Ab Discovery 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 Discovery Growth are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Value has no effect on the direction of Ab Discovery i.e., Ab Discovery and Small Cap go up and down completely randomly.

Pair Corralation between Ab Discovery and Small Cap

Assuming the 90 days horizon Ab Discovery Growth is expected to generate 0.93 times more return on investment than Small Cap. However, Ab Discovery Growth is 1.08 times less risky than Small Cap. It trades about 0.05 of its potential returns per unit of risk. Small Cap Value is currently generating about 0.04 per unit of risk. If you would invest  1,017  in Ab Discovery Growth on June 23, 2024 and sell it today you would earn a total of  304.00  from holding Ab Discovery Growth or generate 29.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.78%
Values	Daily Returns

Ab Discovery Growth  vs.  Small Cap Value

Ab Discovery Growth

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ab Discovery Growth are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Ab Discovery may actually be approaching a critical reversion point that can send shares even higher in October 2024.

Small Cap Value

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with Ab Discovery and Small Cap

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

The idea behind Ab Discovery Growth and Small Cap 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.