Correlation Between W R and American Financial

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

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

Diversification Opportunities for W R and American Financial

0.92

Correlation Coefficient

W R  American Financial

Almost no diversification

The 3 months correlation between WR1 and American is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding W R Berkley and American Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Financial and W R 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 W R Berkley 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 W R i.e., W R and American Financial go up and down completely randomly.

Pair Corralation between W R and American Financial

Assuming the 90 days horizon W R Berkley is expected to under-perform the American Financial. But the stock apears to be less risky and, when comparing its historical volatility, W R Berkley is 1.25 times less risky than American Financial. The stock trades about -0.55 of its potential returns per unit of risk. The American Financial Group is currently generating about -0.34 of returns per unit of risk over similar time horizon. 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	Very Strong
Accuracy	100.0%
Values	Daily Returns

W R Berkley  vs.  American Financial Group

W R Berkley

Risk-Adjusted Performance

7 of 100

OK

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

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 W R and American Financial

The main advantage of trading using opposite W R and American Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if W R 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 W R Berkley 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.