Correlation Between American Financial and PPLUS Trust

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

Diversification Opportunities for American Financial and PPLUS Trust

0.02

Correlation Coefficient

American Financial  PPLUS Trust

Significant diversification

The 3 months correlation between American and PPLUS is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding American Financial Group and PPLUS Trust Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PPLUS Trust Series 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 PPLUS Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PPLUS Trust Series has no effect on the direction of American Financial i.e., American Financial and PPLUS Trust go up and down completely randomly.

Pair Corralation between American Financial and PPLUS Trust

Given the investment horizon of 90 days American Financial Group is expected to under-perform the PPLUS Trust. But the stock apears to be less risky and, when comparing its historical volatility, American Financial Group is 1.55 times less risky than PPLUS Trust. The stock trades about -0.04 of its potential returns per unit of risk. The PPLUS Trust Series is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,215  in PPLUS Trust Series on October 20, 2024 and sell it today you would earn a total of  105.00  from holding PPLUS Trust Series or generate 4.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

American Financial Group  vs.  PPLUS Trust Series

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. In spite of latest weak performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

PPLUS Trust Series

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PPLUS Trust Series are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, PPLUS Trust is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with American Financial and PPLUS Trust

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

The idea behind American Financial Group and PPLUS Trust Series 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.