Correlation Between Old Republic and American International

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

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

Diversification Opportunities for Old Republic and American International

0.86

Correlation Coefficient

Old Republic  American International

Very poor diversification

The 3 months correlation between Old and American is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Old Republic International and American International Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American International and Old Republic 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 Old Republic International are associated (or correlated) with American International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American International has no effect on the direction of Old Republic i.e., Old Republic and American International go up and down completely randomly.

Pair Corralation between Old Republic and American International

Considering the 90-day investment horizon Old Republic is expected to generate 1.12 times less return on investment than American International. But when comparing it to its historical volatility, Old Republic International is 1.12 times less risky than American International. It trades about 0.19 of its potential returns per unit of risk. American International Group is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  7,265  in American International Group on December 27, 2024 and sell it today you would earn a total of  1,177  from holding American International Group or generate 16.2% return on investment over 90 days.

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

Old Republic International  vs.  American International Group

Old Republic Interna

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Old Republic International are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, Old Republic demonstrated solid returns over the last few months and may actually be approaching a breakup point.

American International

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American International Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent forward indicators, American International reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Old Republic and American International

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

The idea behind Old Republic International and American International 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.