Correlation Between Gear4music Plc and Aberdeen Diversified

Can any of the company-specific risk be diversified away by investing in both Gear4music Plc and Aberdeen Diversified 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 Gear4music Plc and Aberdeen Diversified into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Gear4music Plc and Aberdeen Diversified Income, you can compare the effects of market volatilities on Gear4music Plc and Aberdeen Diversified 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 Gear4music Plc with a short position of Aberdeen Diversified. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gear4music Plc and Aberdeen Diversified.

Diversification Opportunities for Gear4music Plc and Aberdeen Diversified

0.26

Correlation Coefficient

Gear4music Plc  Aberdeen Diversified

Modest diversification

The 3 months correlation between Gear4music and Aberdeen is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Gear4music Plc and Aberdeen Diversified Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aberdeen Diversified and Gear4music Plc 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 Gear4music Plc are associated (or correlated) with Aberdeen Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aberdeen Diversified has no effect on the direction of Gear4music Plc i.e., Gear4music Plc and Aberdeen Diversified go up and down completely randomly.

Pair Corralation between Gear4music Plc and Aberdeen Diversified

Assuming the 90 days trading horizon Gear4music Plc is expected to under-perform the Aberdeen Diversified. But the stock apears to be less risky and, when comparing its historical volatility, Gear4music Plc is 1.13 times less risky than Aberdeen Diversified. The stock trades about -0.03 of its potential returns per unit of risk. The Aberdeen Diversified Income is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  4,305  in Aberdeen Diversified Income on September 12, 2024 and sell it today you would lose (5.00) from holding Aberdeen Diversified Income or give up 0.12% of portfolio value over 90 days.

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

Gear4music Plc  vs.  Aberdeen Diversified Income

Gear4music Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gear4music Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Gear4music Plc is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Aberdeen Diversified

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Aberdeen Diversified Income has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Aberdeen Diversified is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Gear4music Plc and Aberdeen Diversified

The main advantage of trading using opposite Gear4music Plc and Aberdeen Diversified positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gear4music Plc position performs unexpectedly, Aberdeen Diversified 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 Diversified will offset losses from the drop in Aberdeen Diversified's long position.

The idea behind Gear4music Plc and Aberdeen Diversified Income 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.