Correlation Between Firsthand Alternative and American Beacon

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

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

Diversification Opportunities for Firsthand Alternative and American Beacon

-0.41

Correlation Coefficient

Firsthand Alternative  American Beacon

Very good diversification

The 3 months correlation between Firsthand and American is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Firsthand Alternative Energy and American Beacon Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Small and Firsthand Alternative 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 Firsthand Alternative Energy 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 Small has no effect on the direction of Firsthand Alternative i.e., Firsthand Alternative and American Beacon go up and down completely randomly.

Pair Corralation between Firsthand Alternative and American Beacon

Assuming the 90 days horizon Firsthand Alternative Energy is expected to under-perform the American Beacon. In addition to that, Firsthand Alternative is 1.23 times more volatile than American Beacon Small. It trades about -0.01 of its total potential returns per unit of risk. American Beacon Small is currently generating about 0.11 per unit of volatility. If you would invest  2,209  in American Beacon Small on September 14, 2024 and sell it today you would earn a total of  176.00  from holding American Beacon Small or generate 7.97% return on investment over 90 days.

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

Firsthand Alternative Energy  vs.  American Beacon Small

Firsthand Alternative

Risk-Adjusted Performance

0 of 100

Very Weak

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

American Beacon Small

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Beacon Small are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, American Beacon may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Firsthand Alternative and American Beacon

The main advantage of trading using opposite Firsthand Alternative and American Beacon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Firsthand Alternative 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 Firsthand Alternative Energy and American Beacon Small 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.