Correlation Between Federal Life and Aflac Incorporated

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

Diversification Opportunities for Federal Life and Aflac Incorporated

-0.21
  Correlation Coefficient

Very good diversification

The 3 months correlation between Federal and Aflac is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Federal Life Group and Aflac Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aflac Incorporated and Federal Life 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 Federal Life Group are associated (or correlated) with Aflac Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aflac Incorporated has no effect on the direction of Federal Life i.e., Federal Life and Aflac Incorporated go up and down completely randomly.

Pair Corralation between Federal Life and Aflac Incorporated

Given the investment horizon of 90 days Federal Life Group is expected to under-perform the Aflac Incorporated. In addition to that, Federal Life is 2.6 times more volatile than Aflac Incorporated. It trades about -0.01 of its total potential returns per unit of risk. Aflac Incorporated is currently generating about 0.05 per unit of volatility. If you would invest  6,239  in Aflac Incorporated on December 29, 2023 and sell it today you would earn a total of  2,323  from holding Aflac Incorporated or generate 37.23% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy42.71%
ValuesDaily Returns

Federal Life Group  vs.  Aflac Incorporated

 Performance 
       Timeline  
Federal Life Group 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Federal Life Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Federal Life is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.
Aflac Incorporated 

Risk-Adjusted Performance

4 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Aflac Incorporated are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical and fundamental indicators, Aflac Incorporated is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Federal Life and Aflac Incorporated Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Federal Life and Aflac Incorporated

The main advantage of trading using opposite Federal Life and Aflac Incorporated positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federal Life position performs unexpectedly, Aflac Incorporated 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 Aflac Incorporated will offset losses from the drop in Aflac Incorporated's long position.
The idea behind Federal Life Group and Aflac Incorporated 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..

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