Correlation Between Floating Rate and L Abbett

Can any of the company-specific risk be diversified away by investing in both Floating Rate and L Abbett 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 Floating Rate and L Abbett into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Floating Rate Fund and L Abbett Fundamental, you can compare the effects of market volatilities on Floating Rate and L Abbett 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 Floating Rate with a short position of L Abbett. Check out your portfolio center. Please also check ongoing floating volatility patterns of Floating Rate and L Abbett.

Diversification Opportunities for Floating Rate and L Abbett

0.89

Correlation Coefficient

Floating Rate  L Abbett

Very poor diversification

The 3 months correlation between Floating and LAVVX is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Floating Rate Fund and L Abbett Fundamental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on L Abbett Fundamental and Floating Rate 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 Floating Rate Fund are associated (or correlated) with L Abbett. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of L Abbett Fundamental has no effect on the direction of Floating Rate i.e., Floating Rate and L Abbett go up and down completely randomly.

Pair Corralation between Floating Rate and L Abbett

Assuming the 90 days horizon Floating Rate is expected to generate 3.52 times less return on investment than L Abbett. But when comparing it to its historical volatility, Floating Rate Fund is 5.42 times less risky than L Abbett. It trades about 0.24 of its potential returns per unit of risk. L Abbett Fundamental is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,488  in L Abbett Fundamental on September 14, 2024 and sell it today you would earn a total of  98.00  from holding L Abbett Fundamental or generate 6.59% return on investment over 90 days.

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

Floating Rate Fund  vs.  L Abbett Fundamental

Floating Rate

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Floating Rate Fund are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Floating Rate is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

L Abbett Fundamental

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in L Abbett Fundamental are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, L Abbett may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Floating Rate and L Abbett

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

The idea behind Floating Rate Fund and L Abbett Fundamental 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.