Correlation Between First American and AMERISAFE

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

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

Diversification Opportunities for First American and AMERISAFE

0.82

Correlation Coefficient

First American  AMERISAFE

Very poor diversification

The 3 months correlation between First and AMERISAFE is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding First American and AMERISAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AMERISAFE and First American 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 First American are associated (or correlated) with AMERISAFE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AMERISAFE has no effect on the direction of First American i.e., First American and AMERISAFE go up and down completely randomly.

Pair Corralation between First American and AMERISAFE

Considering the 90-day investment horizon First American is expected to generate 1.06 times more return on investment than AMERISAFE. However, First American is 1.06 times more volatile than AMERISAFE. It trades about -0.08 of its potential returns per unit of risk. AMERISAFE is currently generating about -0.17 per unit of risk. If you would invest  6,960  in First American on November 29, 2024 and sell it today you would lose (532.00) from holding First American or give up 7.64% of portfolio value over 90 days.

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

First American  vs.  AMERISAFE

First American

Risk-Adjusted Performance

Very Weak

Over the last 90 days First American has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

AMERISAFE

Risk-Adjusted Performance

Very Weak

Over the last 90 days AMERISAFE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with First American and AMERISAFE

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

The idea behind First American and AMERISAFE 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.