Correlation Between Allstate and Brighthouse Financial

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

By analyzing existing cross correlation between The Allstate and Brighthouse Financial, you can compare the effects of market volatilities on Allstate and Brighthouse Financial 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 Allstate with a short position of Brighthouse Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Allstate and Brighthouse Financial.

Diversification Opportunities for Allstate and Brighthouse Financial

0.88

Correlation Coefficient

Allstate  Brighthouse Financial

Very poor diversification

The 3 months correlation between Allstate and Brighthouse is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding The Allstate and Brighthouse Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brighthouse Financial and Allstate 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 The Allstate are associated (or correlated) with Brighthouse Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brighthouse Financial has no effect on the direction of Allstate i.e., Allstate and Brighthouse Financial go up and down completely randomly.

Pair Corralation between Allstate and Brighthouse Financial

Assuming the 90 days trading horizon The Allstate is expected to generate 0.71 times more return on investment than Brighthouse Financial. However, The Allstate is 1.41 times less risky than Brighthouse Financial. It trades about -0.06 of its potential returns per unit of risk. Brighthouse Financial is currently generating about -0.08 per unit of risk. If you would invest  2,269  in The Allstate on September 13, 2024 and sell it today you would lose (21.00) from holding The Allstate or give up 0.93% of portfolio value over 90 days.

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

The Allstate  vs.  Brighthouse Financial

Allstate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Allstate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Preferred Stock's essential indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Brighthouse Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brighthouse Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Brighthouse Financial is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Allstate and Brighthouse Financial

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

The idea behind The Allstate and Brighthouse Financial 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..