Correlation Between Small Cap and Ab Large

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

Diversification Opportunities for Small Cap and Ab Large

0.81

Correlation Coefficient

Small Cap  Ab Large

Very poor diversification

The 3 months correlation between Small and APGAX is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and Ab Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab Large Cap 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 Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab Large Cap has no effect on the direction of Small Cap i.e., Small Cap and Ab Large go up and down completely randomly.

Pair Corralation between Small Cap and Ab Large

Assuming the 90 days horizon Small Cap is expected to generate 1.0 times less return on investment than Ab Large. In addition to that, Small Cap is 1.03 times more volatile than Ab Large Cap. It trades about 0.28 of its total potential returns per unit of risk. Ab Large Cap is currently generating about 0.29 per unit of volatility. If you would invest  8,631  in Ab Large Cap on March 12, 2025 and sell it today you would earn a total of  1,291  from holding Ab Large Cap or generate 14.96% return on investment over 90 days.

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

Small Cap Core  vs.  Ab Large Cap

Small Cap Core

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Core are ranked lower than 4 (%) 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 July 2025.

Ab Large Cap

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ab Large Cap are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Ab Large may actually be approaching a critical reversion point that can send shares even higher in July 2025.

Pair Trading with Small Cap and Ab Large

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

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