Correlation Between MicroSectors Travel and American Beacon

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

By analyzing existing cross correlation between MicroSectors Travel 3X and American Beacon Select, you can compare the effects of market volatilities on MicroSectors Travel 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 MicroSectors Travel with a short position of American Beacon. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors Travel and American Beacon.

Diversification Opportunities for MicroSectors Travel and American Beacon

0.66

Correlation Coefficient

MicroSectors Travel  American Beacon

Poor diversification

The 3 months correlation between MicroSectors and American is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors Travel 3X and American Beacon Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Select and MicroSectors Travel 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 MicroSectors Travel 3X 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 Select has no effect on the direction of MicroSectors Travel i.e., MicroSectors Travel and American Beacon go up and down completely randomly.

Pair Corralation between MicroSectors Travel and American Beacon

Given the investment horizon of 90 days MicroSectors Travel 3X is expected to generate 2.84 times more return on investment than American Beacon. However, MicroSectors Travel is 2.84 times more volatile than American Beacon Select. It trades about 0.15 of its potential returns per unit of risk. American Beacon Select is currently generating about -0.02 per unit of risk. If you would invest  4,469  in MicroSectors Travel 3X on September 26, 2024 and sell it today you would earn a total of  1,593  from holding MicroSectors Travel 3X or generate 35.65% return on investment over 90 days.

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

MicroSectors Travel 3X  vs.  American Beacon Select

MicroSectors Travel

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors Travel 3X are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, MicroSectors Travel unveiled solid returns over the last few months and may actually be approaching a breakup point.

American Beacon Select

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Beacon Select has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, American Beacon is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with MicroSectors Travel and American Beacon

The main advantage of trading using opposite MicroSectors Travel and American Beacon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors Travel 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 MicroSectors Travel 3X and American Beacon Select 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.