Correlation Between Small Cap and Aberdeen China

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

By analyzing existing cross correlation between Small Cap Stock and Aberdeen China Oppty, you can compare the effects of market volatilities on Small Cap and Aberdeen China 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 Small Cap with a short position of Aberdeen China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Aberdeen China.

Diversification Opportunities for Small Cap and Aberdeen China

0.32

Correlation Coefficient

Small Cap  Aberdeen China

Weak diversification

The 3 months correlation between Small and Aberdeen is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Aberdeen China Oppty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aberdeen China Oppty and Small Cap 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 Small Cap Stock are associated (or correlated) with Aberdeen China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aberdeen China Oppty has no effect on the direction of Small Cap i.e., Small Cap and Aberdeen China go up and down completely randomly.

Pair Corralation between Small Cap and Aberdeen China

Assuming the 90 days horizon Small Cap is expected to generate 1.68 times less return on investment than Aberdeen China. But when comparing it to its historical volatility, Small Cap Stock is 1.84 times less risky than Aberdeen China. It trades about 0.13 of its potential returns per unit of risk. Aberdeen China Oppty is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,899  in Aberdeen China Oppty on September 2, 2024 and sell it today you would earn a total of  318.00  from holding Aberdeen China Oppty or generate 16.75% return on investment over 90 days.

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

Small Cap Stock  vs.  Aberdeen China Oppty

Small Cap Stock

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Stock are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Aberdeen China Oppty

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aberdeen China Oppty are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Aberdeen China showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Small Cap and Aberdeen China

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

The idea behind Small Cap Stock and Aberdeen China Oppty 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.