Correlation Between First American and Mapfre SA

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

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

Diversification Opportunities for First American and Mapfre SA

0.46

Correlation Coefficient

First American  Mapfre SA

Very weak diversification

The 3 months correlation between First and Mapfre is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding First American Financial and Mapfre SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mapfre SA and First American 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 First American Financial are associated (or correlated) with Mapfre SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mapfre SA has no effect on the direction of First American i.e., First American and Mapfre SA go up and down completely randomly.

Pair Corralation between First American and Mapfre SA

Assuming the 90 days horizon First American is expected to generate 1.49 times less return on investment than Mapfre SA. But when comparing it to its historical volatility, First American Financial is 1.1 times less risky than Mapfre SA. It trades about 0.08 of its potential returns per unit of risk. Mapfre SA is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  222.00  in Mapfre SA on September 16, 2024 and sell it today you would earn a total of  24.00  from holding Mapfre SA or generate 10.81% return on investment over 90 days.

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

First American Financial  vs.  Mapfre SA

First American Financial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First American Financial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, First American may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Mapfre SA

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mapfre SA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Mapfre SA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First American and Mapfre SA

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

The idea behind First American Financial and Mapfre SA 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.

Check out your portfolio center.

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.