Correlation Between Abbey Capital and American Beacon

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

By analyzing existing cross correlation between Abbey Capital Futures and American Beacon Ahl, you can compare the effects of market volatilities on Abbey Capital and American Beacon 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 Abbey Capital with a short position of American Beacon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Abbey Capital and American Beacon.

Diversification Opportunities for Abbey Capital and American Beacon

0.92

Correlation Coefficient

Abbey Capital  American Beacon

Almost no diversification

The 3 months correlation between Abbey and AMERICAN is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Abbey Capital Futures and American Beacon Ahl in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Ahl and Abbey Capital 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 Abbey Capital Futures are associated (or correlated) with American Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Beacon Ahl has no effect on the direction of Abbey Capital i.e., Abbey Capital and American Beacon go up and down completely randomly.

Pair Corralation between Abbey Capital and American Beacon

Assuming the 90 days horizon Abbey Capital Futures is expected to generate 0.73 times more return on investment than American Beacon. However, Abbey Capital Futures is 1.37 times less risky than American Beacon. It trades about -0.04 of its potential returns per unit of risk. American Beacon Ahl is currently generating about -0.12 per unit of risk. If you would invest  1,099  in Abbey Capital Futures on December 29, 2024 and sell it today you would lose (13.00) from holding Abbey Capital Futures or give up 1.18% of portfolio value over 90 days.

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

Abbey Capital Futures  vs.  American Beacon Ahl

Abbey Capital Futures

Risk-Adjusted Performance

Very Weak

Over the last 90 days Abbey Capital Futures has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Abbey Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Beacon Ahl

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Beacon Ahl has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, American Beacon is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Abbey Capital and American Beacon

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

The idea behind Abbey Capital Futures and American Beacon Ahl 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.