Correlation Between Globe Life and Aflac Incorporated

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

By analyzing existing cross correlation between Globe Life and Aflac Incorporated, you can compare the effects of market volatilities on Globe Life and Aflac Incorporated 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 Aflac Incorporated. Check out your portfolio center. Please also check ongoing floating volatility patterns of Globe Life and Aflac Incorporated.

Diversification Opportunities for Globe Life and Aflac Incorporated

0.8

Correlation Coefficient

Globe Life  Aflac Incorporated

Very poor diversification

The 3 months correlation between Globe and Aflac is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Globe Life and Aflac Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aflac Incorporated 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 are associated (or correlated) with Aflac Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aflac Incorporated has no effect on the direction of Globe Life i.e., Globe Life and Aflac Incorporated go up and down completely randomly.

Pair Corralation between Globe Life and Aflac Incorporated

Allowing for the 90-day total investment horizon Globe Life is expected to generate 1.07 times more return on investment than Aflac Incorporated. However, Globe Life is 1.07 times more volatile than Aflac Incorporated. It trades about 0.23 of its potential returns per unit of risk. Aflac Incorporated is currently generating about 0.1 per unit of risk. If you would invest  10,926  in Globe Life on December 27, 2024 and sell it today you would earn a total of  2,216  from holding Globe Life or generate 20.28% return on investment over 90 days.

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

Globe Life  vs.  Aflac Incorporated

Globe Life

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Globe Life are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, Globe Life disclosed solid returns over the last few months and may actually be approaching a breakup point.

Aflac Incorporated

Risk-Adjusted Performance

OK

Over the last 90 days Aflac Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite weak technical and fundamental indicators, Aflac Incorporated may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Globe Life and Aflac Incorporated

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

The idea behind Globe Life and Aflac Incorporated 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.