Correlation Between ABC TRANSPORT and ABBEY MORTGAGE

Can any of the company-specific risk be diversified away by investing in both ABC TRANSPORT and ABBEY MORTGAGE 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 ABC TRANSPORT and ABBEY MORTGAGE into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ABC TRANSPORT PLC and ABBEY MORTGAGE BANK, you can compare the effects of market volatilities on ABC TRANSPORT and ABBEY MORTGAGE 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 ABC TRANSPORT with a short position of ABBEY MORTGAGE. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABC TRANSPORT and ABBEY MORTGAGE.

Diversification Opportunities for ABC TRANSPORT and ABBEY MORTGAGE

0.16

Correlation Coefficient

ABC TRANSPORT  ABBEY MORTGAGE

Average diversification

The 3 months correlation between ABC and ABBEY is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding ABC TRANSPORT PLC and ABBEY MORTGAGE BANK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABBEY MORTGAGE BANK and ABC TRANSPORT 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 ABC TRANSPORT PLC are associated (or correlated) with ABBEY MORTGAGE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABBEY MORTGAGE BANK has no effect on the direction of ABC TRANSPORT i.e., ABC TRANSPORT and ABBEY MORTGAGE go up and down completely randomly.

Pair Corralation between ABC TRANSPORT and ABBEY MORTGAGE

Assuming the 90 days trading horizon ABC TRANSPORT PLC is expected to generate 1.29 times more return on investment than ABBEY MORTGAGE. However, ABC TRANSPORT is 1.29 times more volatile than ABBEY MORTGAGE BANK. It trades about 0.09 of its potential returns per unit of risk. ABBEY MORTGAGE BANK is currently generating about 0.07 per unit of risk. If you would invest  28.00  in ABC TRANSPORT PLC on October 11, 2024 and sell it today you would earn a total of  94.00  from holding ABC TRANSPORT PLC or generate 335.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	90.74%
Values	Daily Returns

ABC TRANSPORT PLC  vs.  ABBEY MORTGAGE BANK

ABC TRANSPORT PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ABC TRANSPORT PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, ABC TRANSPORT is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

ABBEY MORTGAGE BANK

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ABBEY MORTGAGE BANK are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, ABBEY MORTGAGE exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ABC TRANSPORT and ABBEY MORTGAGE

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

The idea behind ABC TRANSPORT PLC and ABBEY MORTGAGE BANK 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 Stocks Directory module to find actively traded stocks across global markets.