Correlation Between AIA and Federal Life

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

By analyzing existing cross correlation between AIA Group and Federal Life Group, you can compare the effects of market volatilities on AIA and Federal Life 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 AIA with a short position of Federal Life. Check out your portfolio center. Please also check ongoing floating volatility patterns of AIA and Federal Life.

Diversification Opportunities for AIA and Federal Life

0.87

Correlation Coefficient

AIA  Federal Life

Very poor diversification

The 3 months correlation between AIA and Federal is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding AIA Group and Federal Life Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Life Group and AIA 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 AIA Group are associated (or correlated) with Federal Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Life Group has no effect on the direction of AIA i.e., AIA and Federal Life go up and down completely randomly.

Pair Corralation between AIA and Federal Life

If you would invest  675.00  in AIA Group on January 31, 2024 and sell it today you would earn a total of  61.00  from holding AIA Group or generate 9.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	4.76%
Values	Daily Returns

AIA Group  vs.  Federal Life Group

AIA Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

Federal Life Group

Risk-Adjusted Performance

0 of 100

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with AIA and Federal Life

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

The idea behind AIA Group and Federal Life Group 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.