Correlation Between Aberdeen International and Freedom Bank

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

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

Diversification Opportunities for Aberdeen International and Freedom Bank

0.66

Correlation Coefficient

Aberdeen International  Freedom Bank

Poor diversification

The 3 months correlation between Aberdeen and Freedom is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Aberdeen International and Freedom Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freedom Bank and Aberdeen 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 Aberdeen International are associated (or correlated) with Freedom Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freedom Bank has no effect on the direction of Aberdeen International i.e., Aberdeen International and Freedom Bank go up and down completely randomly.

Pair Corralation between Aberdeen International and Freedom Bank

Assuming the 90 days horizon Aberdeen International is not expected to generate positive returns. Moreover, Aberdeen International is 17.32 times more volatile than Freedom Bank of. It trades away all of its potential returns to assume current level of volatility. Freedom Bank of is currently generating about -0.04 per unit of risk. If you would invest  4.00  in Aberdeen International on December 2, 2024 and sell it today you would lose (2.00) from holding Aberdeen International or give up 50.0% of portfolio value over 90 days.

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

Aberdeen International  vs.  Freedom Bank of

Aberdeen International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aberdeen International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Aberdeen International is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Freedom Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Freedom Bank of has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Freedom Bank is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Aberdeen International and Freedom Bank

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

The idea behind Aberdeen International and Freedom Bank of 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.