Correlation Between ABL and DIA
Can any of the company-specific risk be diversified away by investing in both ABL and DIA 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 ABL and DIA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ABL and DIA, you can compare the effects of market volatilities on ABL and DIA 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 ABL with a short position of DIA. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABL and DIA.
Diversification Opportunities for ABL and DIA
Average diversification
The 3 months correlation between ABL and DIA is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding ABL and DIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DIA and ABL 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 ABL are associated (or correlated) with DIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DIA has no effect on the direction of ABL i.e., ABL and DIA go up and down completely randomly.
Pair Corralation between ABL and DIA
If you would invest 35.00 in DIA on August 30, 2024 and sell it today you would earn a total of 49.00 from holding DIA or generate 140.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 1.56% |
| Values | Daily Returns |
ABL vs. DIA
Performance |
| Timeline |
| ABL |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| DIA |
ABL and DIA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ABL and DIA
The main advantage of trading using opposite ABL and DIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABL position performs unexpectedly, DIA 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 DIA will offset losses from the drop in DIA's long position.The idea behind ABL and DIA 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.Check out your portfolio center.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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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