Correlation Between American International and Federal National

Can any of the company-specific risk be diversified away by investing in both American International and Federal National 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 International and Federal National into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American International Group and Federal National Mortgage, you can compare the effects of market volatilities on American International and Federal National 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 International with a short position of Federal National. Check out your portfolio center. Please also check ongoing floating volatility patterns of American International and Federal National.

Diversification Opportunities for American International and Federal National

0.26

Correlation Coefficient

American International  Federal National

Modest diversification

The 3 months correlation between American and Federal is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding American International Group and Federal National Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal National Mortgage and American International 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 International Group are associated (or correlated) with Federal National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal National Mortgage has no effect on the direction of American International i.e., American International and Federal National go up and down completely randomly.

Pair Corralation between American International and Federal National

Considering the 90-day investment horizon American International is expected to generate 148.42 times less return on investment than Federal National. But when comparing it to its historical volatility, American International Group is 6.45 times less risky than Federal National. It trades about 0.01 of its potential returns per unit of risk. Federal National Mortgage is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  110.00  in Federal National Mortgage on September 12, 2024 and sell it today you would earn a total of  171.00  from holding Federal National Mortgage or generate 155.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

American International Group  vs.  Federal National Mortgage

American International

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days American International Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, American International is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Federal National Mortgage

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Federal National Mortgage are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile primary indicators, Federal National sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American International and Federal National

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

The idea behind American International Group and Federal National Mortgage 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.