Correlation Between American Equity and Citizens
Can any of the company-specific risk be diversified away by investing in both American Equity and Citizens 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 Equity and Citizens into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Equity Investment and Citizens, you can compare the effects of market volatilities on American Equity and Citizens 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 Equity with a short position of Citizens. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Equity and Citizens.
Diversification Opportunities for American Equity and Citizens
-0.83 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between American and Citizens is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding American Equity Investment and Citizens in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citizens and American Equity 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 Equity Investment are associated (or correlated) with Citizens. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citizens has no effect on the direction of American Equity i.e., American Equity and Citizens go up and down completely randomly.
Pair Corralation between American Equity and Citizens
Considering the 90-day investment horizon American Equity Investment is expected to generate 0.11 times more return on investment than Citizens. However, American Equity Investment is 9.45 times less risky than Citizens. It trades about -0.11 of its potential returns per unit of risk. Citizens is currently generating about -0.24 per unit of risk. If you would invest 5,551 in American Equity Investment on January 17, 2024 and sell it today you would lose (39.00) from holding American Equity Investment or give up 0.7% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 95.24% |
| Values | Daily Returns |
American Equity Investment vs. Citizens
Performance |
| Timeline |
| American Equity Inve |
| Citizens |
American Equity and Citizens Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Equity and Citizens
The main advantage of trading using opposite American Equity and Citizens positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Equity position performs unexpectedly, Citizens 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 Citizens will offset losses from the drop in Citizens' long position.The idea behind American Equity Investment and Citizens 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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