Correlation Between American Beacon and IShares Oil

Can any of the company-specific risk be diversified away by investing in both American Beacon and IShares Oil 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 American Beacon and IShares Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American Beacon Select and iShares Oil Equipment, you can compare the effects of market volatilities on American Beacon and IShares Oil 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 American Beacon with a short position of IShares Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Beacon and IShares Oil.

Diversification Opportunities for American Beacon and IShares Oil

0.71

Correlation Coefficient

American Beacon  IShares Oil

Poor diversification

The 3 months correlation between American and IShares is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding American Beacon Select and iShares Oil Equipment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Oil Equipment and American Beacon 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 American Beacon Select are associated (or correlated) with IShares Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Oil Equipment has no effect on the direction of American Beacon i.e., American Beacon and IShares Oil go up and down completely randomly.

Pair Corralation between American Beacon and IShares Oil

Given the investment horizon of 90 days American Beacon Select is expected to generate 0.64 times more return on investment than IShares Oil. However, American Beacon Select is 1.56 times less risky than IShares Oil. It trades about 0.21 of its potential returns per unit of risk. iShares Oil Equipment is currently generating about 0.09 per unit of risk. If you would invest  2,776  in American Beacon Select on September 5, 2024 and sell it today you would earn a total of  472.00  from holding American Beacon Select or generate 17.0% return on investment over 90 days.

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

American Beacon Select  vs.  iShares Oil Equipment

American Beacon Select

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Beacon Select are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, American Beacon reported solid returns over the last few months and may actually be approaching a breakup point.

iShares Oil Equipment

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Oil Equipment are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating technical and fundamental indicators, IShares Oil may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with American Beacon and IShares Oil

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

The idea behind American Beacon Select and iShares Oil Equipment 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.

Check out your portfolio center.

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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.