Correlation Between American International and Global Indemnity

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

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

Diversification Opportunities for American International and Global Indemnity

0.37

Correlation Coefficient

American International  Global Indemnity

Weak diversification

The 3 months correlation between American and Global is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding American International Group and Global Indemnity PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Indemnity PLC and American International 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 International Group are associated (or correlated) with Global Indemnity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Indemnity PLC has no effect on the direction of American International i.e., American International and Global Indemnity go up and down completely randomly.

Pair Corralation between American International and Global Indemnity

Considering the 90-day investment horizon American International is expected to generate 2.29 times less return on investment than Global Indemnity. But when comparing it to its historical volatility, American International Group is 1.61 times less risky than Global Indemnity. It trades about 0.1 of its potential returns per unit of risk. Global Indemnity PLC is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  3,075  in Global Indemnity PLC on February 7, 2024 and sell it today you would earn a total of  158.00  from holding Global Indemnity PLC or generate 5.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	81.82%
Values	Daily Returns

American International Group  vs.  Global Indemnity PLC

American International

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American International Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent forward indicators, American International reported solid returns over the last few months and may actually be approaching a breakup point.

Global Indemnity PLC

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Global Indemnity PLC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent essential indicators, Global Indemnity may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with American International and Global Indemnity

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

The idea behind American International Group and Global Indemnity PLC 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.