Correlation Between American Coastal and Avient Corp

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

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

Diversification Opportunities for American Coastal and Avient Corp

0.54

Correlation Coefficient

American Coastal  Avient Corp

Very weak diversification

The 3 months correlation between American and Avient is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding American Coastal Insurance and Avient Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avient Corp and American Coastal 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 Coastal Insurance are associated (or correlated) with Avient Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avient Corp has no effect on the direction of American Coastal i.e., American Coastal and Avient Corp go up and down completely randomly.

Pair Corralation between American Coastal and Avient Corp

Given the investment horizon of 90 days American Coastal Insurance is expected to generate 2.46 times more return on investment than Avient Corp. However, American Coastal is 2.46 times more volatile than Avient Corp. It trades about 0.1 of its potential returns per unit of risk. Avient Corp is currently generating about 0.09 per unit of risk. If you would invest  1,101  in American Coastal Insurance on September 3, 2024 and sell it today you would earn a total of  272.00  from holding American Coastal Insurance or generate 24.7% return on investment over 90 days.

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

American Coastal Insurance  vs.  Avient Corp

American Coastal Ins

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Coastal Insurance are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain forward indicators, American Coastal exhibited solid returns over the last few months and may actually be approaching a breakup point.

Avient Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Avient Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Avient Corp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with American Coastal and Avient Corp

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

The idea behind American Coastal Insurance and Avient Corp 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.