Correlation Between Paradigm Micro and Aberdeen Small

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

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

Diversification Opportunities for Paradigm Micro and Aberdeen Small

0.81

Correlation Coefficient

Paradigm Micro  Aberdeen Small

Very poor diversification

The 3 months correlation between Paradigm and Aberdeen is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Paradigm Micro Cap Fund and Aberdeen Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aberdeen Small Cap and Paradigm Micro 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 Paradigm Micro Cap Fund are associated (or correlated) with Aberdeen Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aberdeen Small Cap has no effect on the direction of Paradigm Micro i.e., Paradigm Micro and Aberdeen Small go up and down completely randomly.

Pair Corralation between Paradigm Micro and Aberdeen Small

Assuming the 90 days horizon Paradigm Micro is expected to generate 1.81 times less return on investment than Aberdeen Small. In addition to that, Paradigm Micro is 1.11 times more volatile than Aberdeen Small Cap. It trades about 0.08 of its total potential returns per unit of risk. Aberdeen Small Cap is currently generating about 0.15 per unit of volatility. If you would invest  3,763  in Aberdeen Small Cap on September 17, 2024 and sell it today you would earn a total of  414.00  from holding Aberdeen Small Cap or generate 11.0% return on investment over 90 days.

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

Paradigm Micro Cap Fund  vs.  Aberdeen Small Cap

Paradigm Micro Cap

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Paradigm Micro Cap Fund are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Paradigm Micro is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Aberdeen Small Cap

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aberdeen Small Cap are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Aberdeen Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Paradigm Micro and Aberdeen Small

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

The idea behind Paradigm Micro Cap Fund and Aberdeen Small Cap 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.