Correlation Between Taylor Morrison and American Financial

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

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

Diversification Opportunities for Taylor Morrison and American Financial

0.42

Correlation Coefficient

Taylor Morrison  American Financial

Very weak diversification

The 3 months correlation between Taylor and American is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Taylor Morrison Home and American Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Financial and Taylor Morrison 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 Taylor Morrison Home 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 Taylor Morrison i.e., Taylor Morrison and American Financial go up and down completely randomly.

Pair Corralation between Taylor Morrison and American Financial

Assuming the 90 days trading horizon Taylor Morrison Home is expected to under-perform the American Financial. In addition to that, Taylor Morrison is 1.91 times more volatile than American Financial Group. It trades about -0.51 of its total potential returns per unit of risk. American Financial Group is currently generating about -0.34 per unit of volatility. If you would invest  13,900  in American Financial Group on October 2, 2024 and sell it today you would lose (900.00) from holding American Financial Group or give up 6.47% of portfolio value over 90 days.

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

Taylor Morrison Home  vs.  American Financial Group

Taylor Morrison Home

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taylor Morrison Home has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Taylor Morrison is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

American Financial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Financial Group are ranked lower than 8 (%) 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 January 2025.

Pair Trading with Taylor Morrison and American Financial

The main advantage of trading using opposite Taylor Morrison and American Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taylor Morrison 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 Taylor Morrison Home 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.