Correlation Between American Financial and Hippo Holdings

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

Diversification Opportunities for American Financial and Hippo Holdings

0.82

Correlation Coefficient

American Financial  Hippo Holdings

Very poor diversification

The 3 months correlation between American and Hippo is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding American Financial Group and Hippo Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hippo 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 Hippo Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hippo Holdings has no effect on the direction of American Financial i.e., American Financial and Hippo Holdings go up and down completely randomly.

Pair Corralation between American Financial and Hippo Holdings

Considering the 90-day investment horizon American Financial is expected to generate 4.62 times less return on investment than Hippo Holdings. But when comparing it to its historical volatility, American Financial Group is 3.37 times less risky than Hippo Holdings. It trades about 0.16 of its potential returns per unit of risk. Hippo Holdings is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  1,857  in Hippo Holdings on September 3, 2024 and sell it today you would earn a total of  1,447  from holding Hippo Holdings or generate 77.92% return on investment over 90 days.

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

American Financial Group  vs.  Hippo Holdings

American Financial

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Financial Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, American Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Hippo Holdings

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hippo Holdings are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Hippo Holdings displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Financial and Hippo Holdings

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

The idea behind American Financial Group and Hippo 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.