Correlation Between First Trust and Aberdeen Income

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

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

Diversification Opportunities for First Trust and Aberdeen Income

-0.27

Correlation Coefficient

First Trust  Aberdeen Income

Very good diversification

The 3 months correlation between First and Aberdeen is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Mortgage 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 First Trust 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 First Trust Mortgage 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 First Trust i.e., First Trust and Aberdeen Income go up and down completely randomly.

Pair Corralation between First Trust and Aberdeen Income

Considering the 90-day investment horizon First Trust Mortgage is expected to generate 0.87 times more return on investment than Aberdeen Income. However, First Trust Mortgage is 1.16 times less risky than Aberdeen Income. It trades about 0.08 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  1,179  in First Trust Mortgage on September 19, 2024 and sell it today you would earn a total of  19.00  from holding First Trust Mortgage or generate 1.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

First Trust Mortgage  vs.  Aberdeen Income Credit

First Trust Mortgage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Mortgage has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong primary indicators, First Trust is not utilizing all of its potentials. The latest 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 First Trust and Aberdeen Income

The main advantage of trading using opposite First Trust and Aberdeen Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust 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 First Trust Mortgage 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.