Correlation Between American Equity and Great Eastern

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

By analyzing existing cross correlation between American Equity Investment and Great Eastern Holdings, you can compare the effects of market volatilities on American Equity and Great Eastern 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 Equity with a short position of Great Eastern. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Equity and Great Eastern.

Diversification Opportunities for American Equity and Great Eastern

0.7

Correlation Coefficient

American Equity  Great Eastern

Poor diversification

The 3 months correlation between American and Great is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding American Equity Investment and Great Eastern Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great Eastern Holdings and American Equity 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 Equity Investment are associated (or correlated) with Great Eastern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great Eastern Holdings has no effect on the direction of American Equity i.e., American Equity and Great Eastern go up and down completely randomly.

Pair Corralation between American Equity and Great Eastern

Assuming the 90 days trading horizon American Equity Investment is expected to generate 2.22 times more return on investment than Great Eastern. However, American Equity is 2.22 times more volatile than Great Eastern Holdings. It trades about 0.07 of its potential returns per unit of risk. Great Eastern Holdings is currently generating about 0.13 per unit of risk. If you would invest  2,367  in American Equity Investment on March 14, 2024 and sell it today you would earn a total of  63.00  from holding American Equity Investment or generate 2.66% return on investment over 90 days.

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

American Equity Investment  vs.  Great Eastern Holdings

American Equity Inve

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Equity Investment are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, American Equity is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Great Eastern Holdings

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Great Eastern Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, Great Eastern is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with American Equity and Great Eastern

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

The idea behind American Equity Investment and Great Eastern Holdings 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 Transaction History module to view history of all your transactions and understand their impact on performance.