Correlation Between American Financial and Affiliated Managers

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

Diversification Opportunities for American Financial and Affiliated Managers

0.84

Correlation Coefficient

American Financial  Affiliated Managers

Very poor diversification

The 3 months correlation between American and Affiliated is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding American Financial Group and Affiliated Managers Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Affiliated Managers 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 Affiliated Managers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Affiliated Managers has no effect on the direction of American Financial i.e., American Financial and Affiliated Managers go up and down completely randomly.

Pair Corralation between American Financial and Affiliated Managers

Given the investment horizon of 90 days American Financial Group is expected to generate 1.3 times more return on investment than Affiliated Managers. However, American Financial is 1.3 times more volatile than Affiliated Managers Group. It trades about 0.05 of its potential returns per unit of risk. Affiliated Managers Group is currently generating about 0.05 per unit of risk. If you would invest  2,175  in American Financial Group on August 31, 2024 and sell it today you would earn a total of  46.00  from holding American Financial Group or generate 2.11% 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.  Affiliated Managers Group

American Financial

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Financial Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, American Financial is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Affiliated Managers

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Affiliated Managers Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, Affiliated Managers is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with American Financial and Affiliated Managers

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

The idea behind American Financial Group and Affiliated Managers Group 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.