Correlation Between Meta Platforms and American Equity

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

By analyzing existing cross correlation between Meta Platforms and American Equity Investment, you can compare the effects of market volatilities on Meta Platforms and American Equity 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 Meta Platforms with a short position of American Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Meta Platforms and American Equity.

Diversification Opportunities for Meta Platforms and American Equity

-0.36

Correlation Coefficient

Meta Platforms  American Equity

Very good diversification

The 3 months correlation between Meta and American is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Meta Platforms and American Equity Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Equity Inve and Meta Platforms 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 Meta Platforms are associated (or correlated) with American Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Equity Inve has no effect on the direction of Meta Platforms i.e., Meta Platforms and American Equity go up and down completely randomly.

Pair Corralation between Meta Platforms and American Equity

Given the investment horizon of 90 days Meta Platforms is expected to generate 3.37 times more return on investment than American Equity. However, Meta Platforms is 3.37 times more volatile than American Equity Investment. It trades about 0.25 of its potential returns per unit of risk. American Equity Investment is currently generating about 0.11 per unit of risk. If you would invest  44,329  in Meta Platforms on February 26, 2024 and sell it today you would earn a total of  3,493  from holding Meta Platforms or generate 7.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	27.27%
Values	Daily Returns

Meta Platforms  vs.  American Equity Investment

Meta Platforms

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Meta Platforms has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Meta Platforms is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

American Equity Inve

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days American Equity Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, American Equity is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Meta Platforms and American Equity

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

The idea behind Meta Platforms and American Equity Investment 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.