Correlation Between Loews Corp and American Financial

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

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

Diversification Opportunities for Loews Corp and American Financial

0.8

Correlation Coefficient

Loews Corp  American Financial

Very poor diversification

The 3 months correlation between Loews and American is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Loews Corp and American Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Financial and Loews Corp 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 Loews Corp 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 Loews Corp i.e., Loews Corp and American Financial go up and down completely randomly.

Pair Corralation between Loews Corp and American Financial

Taking into account the 90-day investment horizon Loews Corp is expected to generate 2.16 times less return on investment than American Financial. But when comparing it to its historical volatility, Loews Corp is 1.06 times less risky than American Financial. It trades about 0.08 of its potential returns per unit of risk. American Financial Group is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  12,854  in American Financial Group on September 2, 2024 and sell it today you would earn a total of  1,832  from holding American Financial Group or generate 14.25% return on investment over 90 days.

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

Loews Corp  vs.  American Financial Group

Loews Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Loews Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating essential indicators, Loews Corp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 Loews Corp and American Financial

The main advantage of trading using opposite Loews Corp and American Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Loews Corp 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 Loews Corp 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.

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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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.