Correlation Between Aflac Incorporated and Brighthouse Financial
Can any of the company-specific risk be diversified away by investing in both Aflac Incorporated and Brighthouse Financial 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 Aflac Incorporated and Brighthouse Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aflac Incorporated and Brighthouse Financial, you can compare the effects of market volatilities on Aflac Incorporated and Brighthouse Financial 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 Aflac Incorporated with a short position of Brighthouse Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aflac Incorporated and Brighthouse Financial.
Diversification Opportunities for Aflac Incorporated and Brighthouse Financial
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Aflac and Brighthouse is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Aflac Incorporated and Brighthouse Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brighthouse Financial and Aflac Incorporated 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 Aflac Incorporated are associated (or correlated) with Brighthouse Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brighthouse Financial has no effect on the direction of Aflac Incorporated i.e., Aflac Incorporated and Brighthouse Financial go up and down completely randomly.
Pair Corralation between Aflac Incorporated and Brighthouse Financial
Considering the 90-day investment horizon Aflac Incorporated is expected to under-perform the Brighthouse Financial. But the stock apears to be less risky and, when comparing its historical volatility, Aflac Incorporated is 1.24 times less risky than Brighthouse Financial. The stock trades about -0.05 of its potential returns per unit of risk. The Brighthouse Financial is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 4,903 in Brighthouse Financial on January 24, 2024 and sell it today you would earn a total of 12.00 from holding Brighthouse Financial or generate 0.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.24% |
| Values | Daily Returns |
Aflac Incorporated vs. Brighthouse Financial
Performance |
| Timeline |
| Aflac Incorporated |
| Brighthouse Financial |
Aflac Incorporated and Brighthouse Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Aflac Incorporated and Brighthouse Financial
The main advantage of trading using opposite Aflac Incorporated and Brighthouse Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aflac Incorporated position performs unexpectedly, Brighthouse Financial 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 Brighthouse Financial will offset losses from the drop in Brighthouse Financial's long position.The idea behind Aflac Incorporated and Brighthouse Financial 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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