Correlation Between MetLife Preferred and American Equity

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

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

Diversification Opportunities for MetLife Preferred and American Equity

0.67

Correlation Coefficient

MetLife Preferred  American Equity

Poor diversification

The 3 months correlation between MetLife and American is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding MetLife Preferred Stock and American Equity Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Equity Inve and MetLife Preferred 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 MetLife Preferred Stock are associated (or correlated) with American Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Equity Inve has no effect on the direction of MetLife Preferred i.e., MetLife Preferred and American Equity go up and down completely randomly.

Pair Corralation between MetLife Preferred and American Equity

Assuming the 90 days trading horizon MetLife Preferred Stock is expected to generate 1.64 times more return on investment than American Equity. However, MetLife Preferred is 1.64 times more volatile than American Equity Investment. It trades about 0.14 of its potential returns per unit of risk. American Equity Investment is currently generating about 0.14 per unit of risk. If you would invest  2,393  in MetLife Preferred Stock on February 3, 2024 and sell it today you would earn a total of  51.00  from holding MetLife Preferred Stock or generate 2.13% return on investment over 90 days.

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

MetLife Preferred Stock  vs.  American Equity Investment

MetLife Preferred Stock

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MetLife Preferred Stock are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, MetLife Preferred is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Equity Inve

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Equity Investment are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical and fundamental indicators, American Equity is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with MetLife Preferred and American Equity

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

The idea behind MetLife Preferred Stock and American Equity Investment 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.