Correlation Between Small Cap and Aberdeen Income

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

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

Diversification Opportunities for Small Cap and Aberdeen Income

0.45

Correlation Coefficient

Small Cap  Aberdeen Income

Very weak diversification

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

Pair Corralation between Small Cap and Aberdeen Income

Assuming the 90 days horizon Small Cap Value Fund is expected to generate 1.37 times more return on investment than Aberdeen Income. However, Small Cap is 1.37 times more volatile than Aberdeen Income Credit. It trades about -0.19 of its potential returns per unit of risk. Aberdeen Income Credit is currently generating about -0.33 per unit of risk. 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

Small Cap Value Fund  vs.  Aberdeen Income Credit

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.

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.

Pair Trading with Small Cap and Aberdeen Income

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

The idea behind Small Cap Value Fund and Aberdeen Income Credit 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.