Correlation Between Western Asset and Aberdeen Income

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

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

Diversification Opportunities for Western Asset and Aberdeen Income

0.64

Correlation Coefficient

Western Asset  Aberdeen Income

Poor diversification

The 3 months correlation between Western and Aberdeen is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Diversified and Aberdeen Income Credit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aberdeen Income Credit and Western Asset 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 Western Asset Diversified are associated (or correlated) with Aberdeen Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aberdeen Income Credit has no effect on the direction of Western Asset i.e., Western Asset and Aberdeen Income go up and down completely randomly.

Pair Corralation between Western Asset and Aberdeen Income

Considering the 90-day investment horizon Western Asset is expected to generate 1.57 times less return on investment than Aberdeen Income. But when comparing it to its historical volatility, Western Asset Diversified is 1.13 times less risky than Aberdeen Income. It trades about 0.16 of its potential returns per unit of risk. Aberdeen Income Credit is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  577.00  in Aberdeen Income Credit on December 5, 2024 and sell it today you would earn a total of  27.00  from holding Aberdeen Income Credit or generate 4.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.5%
Values	Daily Returns

Western Asset Diversified  vs.  Aberdeen Income Credit

Western Asset Diversified

Risk-Adjusted Performance

Very Weak

Over the last 90 days Western Asset Diversified has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Western Asset is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Aberdeen Income Credit

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aberdeen Income Credit has generated negative risk-adjusted returns adding no value to fund investors. Even with relatively invariable fundamental indicators, Aberdeen Income is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Western Asset and Aberdeen Income

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

The idea behind Western Asset Diversified and Aberdeen Income Credit 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.