Correlation Between Microsoft and American Financial

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

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

Diversification Opportunities for Microsoft and American Financial

0.49

Correlation Coefficient

Microsoft  American Financial

Very weak diversification

The 3 months correlation between Microsoft and American is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and American Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Financial and Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and American Financial go up and down completely randomly.

Pair Corralation between Microsoft and American Financial

Given the investment horizon of 90 days Microsoft is expected to under-perform the American Financial. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.4 times less risky than American Financial. The stock trades about -0.07 of its potential returns per unit of risk. The American Financial Group is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  13,017  in American Financial Group on October 22, 2024 and sell it today you would lose (17.00) from holding American Financial Group or give up 0.13% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	84.21%
Values	Daily Returns

Microsoft  vs.  American Financial Group

Microsoft

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

American Financial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Financial Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, American Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Microsoft and American Financial

The main advantage of trading using opposite Microsoft and American Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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 Microsoft 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.