Correlation Between American Financial and Digimarc

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

Diversification Opportunities for American Financial and Digimarc

-0.53

Correlation Coefficient

American Financial  Digimarc

Excellent diversification

The 3 months correlation between American and Digimarc is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding American Financial Group and Digimarc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digimarc 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 Digimarc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digimarc has no effect on the direction of American Financial i.e., American Financial and Digimarc go up and down completely randomly.

Pair Corralation between American Financial and Digimarc

Given the investment horizon of 90 days American Financial Group is expected to under-perform the Digimarc. But the preferred stock apears to be less risky and, when comparing its historical volatility, American Financial Group is 5.93 times less risky than Digimarc. The preferred stock trades about -0.18 of its potential returns per unit of risk. The Digimarc is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  3,292  in Digimarc on October 6, 2024 and sell it today you would earn a total of  1,389  from holding Digimarc or generate 42.19% 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.  Digimarc

American Financial

Risk-Adjusted Performance

0 of 100

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 somewhat strong technical and fundamental indicators, American Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Digimarc

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Digimarc are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Digimarc exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Financial and Digimarc

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

The idea behind American Financial Group and Digimarc 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.