Correlation Between HCI and American Financial

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

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

Diversification Opportunities for HCI and American Financial

0.28

Correlation Coefficient

HCI  American Financial

Modest diversification

The 3 months correlation between HCI and American is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding HCI Group and American Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Financial and HCI 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 HCI Group are associated (or correlated) with American Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Financial has no effect on the direction of HCI i.e., HCI and American Financial go up and down completely randomly.

Pair Corralation between HCI and American Financial

Considering the 90-day investment horizon HCI Group is expected to generate 2.49 times more return on investment than American Financial. However, HCI is 2.49 times more volatile than American Financial Group. It trades about 0.13 of its potential returns per unit of risk. American Financial Group is currently generating about 0.16 per unit of risk. If you would invest  9,423  in HCI Group on September 2, 2024 and sell it today you would earn a total of  2,764  from holding HCI Group or generate 29.33% return on investment over 90 days.

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

HCI Group  vs.  American Financial Group

HCI Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HCI Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady fundamental indicators, HCI demonstrated solid returns over the last few months and may actually be approaching a breakup point.

American Financial

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Financial Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent technical and fundamental indicators, American Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HCI and American Financial

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

The idea behind HCI Group and American Financial Group 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.