Correlation Between Globe Life and Brighthouse Financial

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

By analyzing existing cross correlation between Globe Life 425 and Brighthouse Financial, you can compare the effects of market volatilities on Globe Life 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 Globe Life with a short position of Brighthouse Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Globe Life and Brighthouse Financial.

Diversification Opportunities for Globe Life and Brighthouse Financial

0.86

Correlation Coefficient

Globe Life  Brighthouse Financial

Very poor diversification

The 3 months correlation between Globe and Brighthouse is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Globe Life 425 and Brighthouse Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brighthouse Financial and Globe Life 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 Globe Life 425 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 Globe Life i.e., Globe Life and Brighthouse Financial go up and down completely randomly.

Pair Corralation between Globe Life and Brighthouse Financial

Assuming the 90 days horizon Globe Life is expected to generate 1.66 times less return on investment than Brighthouse Financial. In addition to that, Globe Life is 1.1 times more volatile than Brighthouse Financial. It trades about 0.02 of its total potential returns per unit of risk. Brighthouse Financial is currently generating about 0.03 per unit of volatility. If you would invest  1,956  in Brighthouse Financial on September 19, 2024 and sell it today you would earn a total of  330.00  from holding Brighthouse Financial or generate 16.87% return on investment over 90 days.

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

Globe Life 425  vs.  Brighthouse Financial

Globe Life 425

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Globe Life 425 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Preferred Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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. Even with latest unsteady performance, the Preferred Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Globe Life and Brighthouse Financial

The main advantage of trading using opposite Globe Life and Brighthouse Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Globe Life 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 Globe Life 425 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.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.