Correlation Between ABBC and My Neighbor

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Can any of the company-specific risk be diversified away by investing in both ABBC and My Neighbor 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 ABBC and My Neighbor into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ABBC and My Neighbor Alice, you can compare the effects of market volatilities on ABBC and My Neighbor 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 ABBC with a short position of My Neighbor. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABBC and My Neighbor.

Diversification Opportunities for ABBC and My Neighbor

-0.35
  Correlation Coefficient

Very good diversification

The 3 months correlation between ABBC and ALICE is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding ABBC and My Neighbor Alice in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on My Neighbor Alice and ABBC 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 ABBC are associated (or correlated) with My Neighbor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of My Neighbor Alice has no effect on the direction of ABBC i.e., ABBC and My Neighbor go up and down completely randomly.

Pair Corralation between ABBC and My Neighbor

Assuming the 90 days trading horizon ABBC is expected to under-perform the My Neighbor. But the crypto coin apears to be less risky and, when comparing its historical volatility, ABBC is 2.2 times less risky than My Neighbor. The crypto coin trades about -0.11 of its potential returns per unit of risk. The My Neighbor Alice is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  181.00  in My Neighbor Alice on December 29, 2023 and sell it today you would earn a total of  11.00  from holding My Neighbor Alice or generate 6.08% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

ABBC  vs.  My Neighbor Alice

 Performance 
       Timeline  
ABBC 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days ABBC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's basic indicators remain rather sound which may send shares a bit higher in April 2024. The latest tumult may also be a sign of longer-term up-swing for ABBC shareholders.
My Neighbor Alice 

Risk-Adjusted Performance

8 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in My Neighbor Alice are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, My Neighbor exhibited solid returns over the last few months and may actually be approaching a breakup point.

ABBC and My Neighbor Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with ABBC and My Neighbor

The main advantage of trading using opposite ABBC and My Neighbor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABBC position performs unexpectedly, My Neighbor 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 My Neighbor will offset losses from the drop in My Neighbor's long position.
The idea behind ABBC and My Neighbor Alice 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.

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