Correlation Between American Financial and Tokyu Construction

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

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

Diversification Opportunities for American Financial and Tokyu Construction

-0.68

Correlation Coefficient

American Financial  Tokyu Construction

Excellent diversification

The 3 months correlation between American and Tokyu is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding American Financial Group and Tokyu Construction Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tokyu Construction and American Financial 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 American Financial Group are associated (or correlated) with Tokyu Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tokyu Construction has no effect on the direction of American Financial i.e., American Financial and Tokyu Construction go up and down completely randomly.

Pair Corralation between American Financial and Tokyu Construction

Assuming the 90 days horizon American Financial Group is expected to under-perform the Tokyu Construction. In addition to that, American Financial is 1.25 times more volatile than Tokyu Construction Co. It trades about -0.12 of its total potential returns per unit of risk. Tokyu Construction Co is currently generating about 0.21 per unit of volatility. If you would invest  418.00  in Tokyu Construction Co on December 21, 2024 and sell it today you would earn a total of  68.00  from holding Tokyu Construction Co or generate 16.27% return on investment over 90 days.

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

American Financial Group  vs.  Tokyu Construction Co

American Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Tokyu Construction

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tokyu Construction Co are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Tokyu Construction reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Financial and Tokyu Construction

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

The idea behind American Financial Group and Tokyu Construction Co 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.