Correlation Between Aberdeen Income and Small Cap

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

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

Diversification Opportunities for Aberdeen Income and Small Cap

0.45

Correlation Coefficient

Aberdeen Income  Small Cap

Very weak diversification

The 3 months correlation between Aberdeen and Small is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Aberdeen Income Credit and Small Cap Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value and Aberdeen Income 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 Income Credit are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Value has no effect on the direction of Aberdeen Income i.e., Aberdeen Income and Small Cap go up and down completely randomly.

Pair Corralation between Aberdeen Income and Small Cap

Considering the 90-day investment horizon Aberdeen Income Credit is expected to under-perform the Small Cap. But the fund apears to be less risky and, when comparing its historical volatility, Aberdeen Income Credit is 1.37 times less risky than Small Cap. The fund trades about -0.33 of its potential returns per unit of risk. The Small Cap Value Fund is currently generating about -0.19 of returns per unit of risk over similar time horizon. If you would invest  4,235  in Small Cap Value Fund on September 19, 2024 and sell it today you would lose (264.00) from holding Small Cap Value Fund or give up 6.23% of portfolio value over 90 days.

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

Aberdeen Income Credit  vs.  Small Cap Value Fund

Aberdeen Income Credit

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aberdeen Income Credit has generated negative risk-adjusted returns adding no value to fund investors. Even with relatively invariable fundamental indicators, Aberdeen Income is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Small Cap Value

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Aberdeen Income and Small Cap

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

The idea behind Aberdeen Income Credit and Small Cap Value Fund 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 Anywhere module to track or share privately all of your investments from the convenience of any device.