Correlation Between Adams Natural and Abbey Capital

Can any of the company-specific risk be diversified away by investing in both Adams Natural and Abbey Capital 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 Adams Natural and Abbey Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Adams Natural Resources and Abbey Capital Multi, you can compare the effects of market volatilities on Adams Natural and Abbey Capital 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 Adams Natural with a short position of Abbey Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Adams Natural and Abbey Capital.

Diversification Opportunities for Adams Natural and Abbey Capital

0.55

Correlation Coefficient

Adams Natural  Abbey Capital

Very weak diversification

The 3 months correlation between Adams and Abbey is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Adams Natural Resources and Abbey Capital Multi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Abbey Capital Multi and Adams Natural 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 Adams Natural Resources are associated (or correlated) with Abbey Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Abbey Capital Multi has no effect on the direction of Adams Natural i.e., Adams Natural and Abbey Capital go up and down completely randomly.

Pair Corralation between Adams Natural and Abbey Capital

Considering the 90-day investment horizon Adams Natural Resources is expected to generate 1.26 times more return on investment than Abbey Capital. However, Adams Natural is 1.26 times more volatile than Abbey Capital Multi. It trades about 0.04 of its potential returns per unit of risk. Abbey Capital Multi is currently generating about 0.03 per unit of risk. If you would invest  2,260  in Adams Natural Resources on October 25, 2024 and sell it today you would earn a total of  46.00  from holding Adams Natural Resources or generate 2.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

Adams Natural Resources  vs.  Abbey Capital Multi

Adams Natural Resources

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Adams Natural Resources are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of very healthy technical and fundamental indicators, Adams Natural is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Abbey Capital Multi

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Abbey Capital Multi are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Abbey Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Adams Natural and Abbey Capital

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

The idea behind Adams Natural Resources and Abbey Capital Multi 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.