Correlation Between American Equity and MetLife

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

Diversification Opportunities for American Equity and MetLife

0.56
  Correlation Coefficient

Very weak diversification

The 3 months correlation between American and MetLife is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding American Equity Investment and MetLife in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MetLife and American Equity 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 American Equity Investment are associated (or correlated) with MetLife. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MetLife has no effect on the direction of American Equity i.e., American Equity and MetLife go up and down completely randomly.

Pair Corralation between American Equity and MetLife

Considering the 90-day investment horizon American Equity Investment is expected to generate 0.98 times more return on investment than MetLife. However, American Equity Investment is 1.02 times less risky than MetLife. It trades about 0.12 of its potential returns per unit of risk. MetLife is currently generating about 0.08 per unit of risk. If you would invest  3,642  in American Equity Investment on December 29, 2023 and sell it today you would earn a total of  1,978  from holding American Equity Investment or generate 54.31% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

American Equity Investment  vs.  MetLife

 Performance 
       Timeline  
American Equity Inve 

Risk-Adjusted Performance

3 of 100

 
Low
 
High
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in American Equity Investment are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.
MetLife 

Risk-Adjusted Performance

13 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in MetLife are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, MetLife unveiled solid returns over the last few months and may actually be approaching a breakup point.

American Equity and MetLife Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with American Equity and MetLife

The main advantage of trading using opposite American Equity and MetLife positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Equity position performs unexpectedly, MetLife 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 MetLife will offset losses from the drop in MetLife's long position.
The idea behind American Equity Investment and MetLife 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.

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