Correlation Between American Financial and AXIS Capital

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

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

Diversification Opportunities for American Financial and AXIS Capital

-0.52

Correlation Coefficient

American Financial  AXIS Capital

Excellent diversification

The 3 months correlation between American and AXIS is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding American Financial Group and AXIS Capital Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AXIS Capital Holdings and American Financial 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 Financial Group are associated (or correlated) with AXIS Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AXIS Capital Holdings has no effect on the direction of American Financial i.e., American Financial and AXIS Capital go up and down completely randomly.

Pair Corralation between American Financial and AXIS Capital

Considering the 90-day investment horizon American Financial Group is expected to under-perform the AXIS Capital. But the stock apears to be less risky and, when comparing its historical volatility, American Financial Group is 1.02 times less risky than AXIS Capital. The stock trades about -0.05 of its potential returns per unit of risk. The AXIS Capital Holdings is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  8,885  in AXIS Capital Holdings on December 27, 2024 and sell it today you would earn a total of  1,085  from holding AXIS Capital Holdings or generate 12.21% return on investment over 90 days.

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

American Financial Group  vs.  AXIS Capital Holdings

American Financial

Risk-Adjusted Performance

Very Weak

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

AXIS Capital Holdings

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AXIS Capital Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, AXIS Capital unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Financial and AXIS Capital

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

The idea behind American Financial Group and AXIS Capital Holdings 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.

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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.