Correlation Between Aberdeen China and Frontier Mfg

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

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

Diversification Opportunities for Aberdeen China and Frontier Mfg

0.63

Correlation Coefficient

Aberdeen China  Frontier Mfg

Poor diversification

The 3 months correlation between Aberdeen and Frontier is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Aberdeen China Oppty and Frontier Mfg Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontier Mfg Global and Aberdeen China 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 Aberdeen China Oppty are associated (or correlated) with Frontier Mfg. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontier Mfg Global has no effect on the direction of Aberdeen China i.e., Aberdeen China and Frontier Mfg go up and down completely randomly.

Pair Corralation between Aberdeen China and Frontier Mfg

Assuming the 90 days horizon Aberdeen China Oppty is expected to generate 4.35 times more return on investment than Frontier Mfg. However, Aberdeen China is 4.35 times more volatile than Frontier Mfg Global. It trades about 0.12 of its potential returns per unit of risk. Frontier Mfg Global is currently generating about 0.12 per unit of risk. If you would invest  1,914  in Aberdeen China Oppty on September 2, 2024 and sell it today you would earn a total of  321.00  from holding Aberdeen China Oppty or generate 16.77% return on investment over 90 days.

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

Aberdeen China Oppty  vs.  Frontier Mfg Global

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 forward indicators, Aberdeen China showed solid returns over the last few months and may actually be approaching a breakup point.

Frontier Mfg Global

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Frontier Mfg Global are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Frontier Mfg is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Aberdeen China and Frontier Mfg

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

The idea behind Aberdeen China Oppty and Frontier Mfg Global 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.