Correlation Between Globe Life and MetLife Preferred

Can any of the company-specific risk be diversified away by investing in both Globe Life and MetLife Preferred 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 MetLife Preferred 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 MetLife Preferred Stock, you can compare the effects of market volatilities on Globe Life and MetLife Preferred 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 MetLife Preferred. Check out your portfolio center. Please also check ongoing floating volatility patterns of Globe Life and MetLife Preferred.

Diversification Opportunities for Globe Life and MetLife Preferred

0.23

Correlation Coefficient

Globe Life  MetLife Preferred

Modest diversification

The 3 months correlation between Globe and MetLife is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Globe Life 425 and MetLife Preferred Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MetLife Preferred Stock 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 MetLife Preferred. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MetLife Preferred Stock has no effect on the direction of Globe Life i.e., Globe Life and MetLife Preferred go up and down completely randomly.

Pair Corralation between Globe Life and MetLife Preferred

Assuming the 90 days horizon Globe Life 425 is expected to generate 1.22 times more return on investment than MetLife Preferred. However, Globe Life is 1.22 times more volatile than MetLife Preferred Stock. It trades about 0.04 of its potential returns per unit of risk. MetLife Preferred Stock is currently generating about -0.01 per unit of risk. If you would invest  1,572  in Globe Life 425 on December 30, 2024 and sell it today you would earn a total of  41.00  from holding Globe Life 425 or generate 2.61% return on investment over 90 days.

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

Globe Life 425  vs.  MetLife Preferred Stock

Globe Life 425

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Globe Life 425 are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Globe Life is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

MetLife Preferred Stock

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Globe Life and MetLife Preferred

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

The idea behind Globe Life 425 and MetLife Preferred Stock 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 Global Correlations module to find global opportunities by holding instruments from different markets.