Correlation Between American Financial and CNA Financial

Can any of the company-specific risk be diversified away by investing in both American Financial and CNA Financial 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 CNA Financial 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 CNA Financial, you can compare the effects of market volatilities on American Financial and CNA Financial 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 CNA Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Financial and CNA Financial.

Diversification Opportunities for American Financial and CNA Financial

-0.24

Correlation Coefficient

American Financial  CNA Financial

Very good diversification

The 3 months correlation between American and CNA is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding American Financial Group and CNA Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CNA Financial 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 CNA Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CNA Financial has no effect on the direction of American Financial i.e., American Financial and CNA Financial go up and down completely randomly.

Pair Corralation between American Financial and CNA Financial

Considering the 90-day investment horizon American Financial Group is expected to under-perform the CNA Financial. In addition to that, American Financial is 1.09 times more volatile than CNA Financial. It trades about -0.05 of its total potential returns per unit of risk. CNA Financial is currently generating about 0.07 per unit of volatility. If you would invest  4,795  in CNA Financial on December 27, 2024 and sell it today you would earn a total of  231.00  from holding CNA Financial or generate 4.82% return on investment over 90 days.

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

American Financial Group  vs.  CNA Financial

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.

CNA Financial

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CNA Financial are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, CNA Financial is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with American Financial and CNA Financial

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

The idea behind American Financial Group and CNA Financial 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..