Correlation Between British American and Aberdeen Diversified

Can any of the company-specific risk be diversified away by investing in both British American and Aberdeen Diversified 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 British American and Aberdeen Diversified into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between British American Tobacco and Aberdeen Diversified Income, you can compare the effects of market volatilities on British American and Aberdeen Diversified 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 British American with a short position of Aberdeen Diversified. Check out your portfolio center. Please also check ongoing floating volatility patterns of British American and Aberdeen Diversified.

Diversification Opportunities for British American and Aberdeen Diversified

0.14

Correlation Coefficient

British American  Aberdeen Diversified

Average diversification

The 3 months correlation between British and Aberdeen is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Aberdeen Diversified Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aberdeen Diversified and British American 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 British American Tobacco are associated (or correlated) with Aberdeen Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aberdeen Diversified has no effect on the direction of British American i.e., British American and Aberdeen Diversified go up and down completely randomly.

Pair Corralation between British American and Aberdeen Diversified

Assuming the 90 days trading horizon British American Tobacco is expected to generate 0.65 times more return on investment than Aberdeen Diversified. However, British American Tobacco is 1.53 times less risky than Aberdeen Diversified. It trades about 0.11 of its potential returns per unit of risk. Aberdeen Diversified Income is currently generating about 0.02 per unit of risk. If you would invest  3,076  in British American Tobacco on September 22, 2024 and sell it today you would earn a total of  547.00  from holding British American Tobacco or generate 17.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.23%
Values	Daily Returns

British American Tobacco  vs.  Aberdeen Diversified Income

British American Tobacco

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days British American Tobacco has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, British American is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Aberdeen Diversified

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Aberdeen Diversified Income are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Aberdeen Diversified is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with British American and Aberdeen Diversified

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

The idea behind British American Tobacco and Aberdeen Diversified Income 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.