Correlation Between National Western and Globe Life

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

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

Diversification Opportunities for National Western and Globe Life

0.25

Correlation Coefficient

National Western  Globe Life

Modest diversification

The 3 months correlation between National and Globe is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding National Western Life and Globe Life in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Globe Life and National Western 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 National Western Life are associated (or correlated) with Globe Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Globe Life has no effect on the direction of National Western i.e., National Western and Globe Life go up and down completely randomly.

Pair Corralation between National Western and Globe Life

Given the investment horizon of 90 days National Western is expected to generate 27.68 times less return on investment than Globe Life. But when comparing it to its historical volatility, National Western Life is 18.75 times less risky than Globe Life. It trades about 0.1 of its potential returns per unit of risk. Globe Life is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  6,639  in Globe Life on March 22, 2024 and sell it today you would earn a total of  1,401  from holding Globe Life or generate 21.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

National Western Life  vs.  Globe Life

National Western Life

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Western Life has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong essential indicators, National Western is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Globe Life

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Globe Life has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with National Western and Globe Life

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

The idea behind National Western Life and Globe Life 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.