Correlation Between First American and Trupanion

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

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

Diversification Opportunities for First American and Trupanion

-0.22

Correlation Coefficient

First American  Trupanion

Very good diversification

The 3 months correlation between First and Trupanion is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding First American Financial and Trupanion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trupanion and First American 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 First American Financial are associated (or correlated) with Trupanion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trupanion has no effect on the direction of First American i.e., First American and Trupanion go up and down completely randomly.

Pair Corralation between First American and Trupanion

Assuming the 90 days horizon First American is expected to generate 777.11 times less return on investment than Trupanion. But when comparing it to its historical volatility, First American Financial is 1.99 times less risky than Trupanion. It trades about 0.0 of its potential returns per unit of risk. Trupanion is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2,919  in Trupanion on April 22, 2025 and sell it today you would earn a total of  1,454  from holding Trupanion or generate 49.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

First American Financial  vs.  Trupanion

First American Financial

Risk-Adjusted Performance

Very Weak

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

Trupanion

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Trupanion are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Trupanion reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First American and Trupanion

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

The idea behind First American Financial and Trupanion 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.