Correlation Between Standard Life and Adams Natural

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

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

Diversification Opportunities for Standard Life and Adams Natural

0.16

Correlation Coefficient

Standard Life  Adams Natural

Average diversification

The 3 months correlation between Standard and Adams is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Standard Life Aberdeen and Adams Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adams Natural Resources and Standard Life 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 Standard Life Aberdeen are associated (or correlated) with Adams Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adams Natural Resources has no effect on the direction of Standard Life i.e., Standard Life and Adams Natural go up and down completely randomly.

Pair Corralation between Standard Life and Adams Natural

Assuming the 90 days horizon Standard Life Aberdeen is expected to under-perform the Adams Natural. In addition to that, Standard Life is 2.03 times more volatile than Adams Natural Resources. It trades about -0.13 of its total potential returns per unit of risk. Adams Natural Resources is currently generating about -0.07 per unit of volatility. If you would invest  2,325  in Adams Natural Resources on October 10, 2024 and sell it today you would lose (88.00) from holding Adams Natural Resources or give up 3.78% of portfolio value over 90 days.

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

Standard Life Aberdeen  vs.  Adams Natural Resources

Standard Life Aberdeen

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Standard Life Aberdeen has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Adams Natural Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Adams Natural Resources has generated negative risk-adjusted returns adding no value to fund investors. 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.

Pair Trading with Standard Life and Adams Natural

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

The idea behind Standard Life Aberdeen and Adams Natural Resources 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.