Correlation Between National Western and American Equity

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

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

Diversification Opportunities for National Western and American Equity

0.67

Correlation Coefficient

National Western  American Equity

Poor diversification

The 3 months correlation between National and American is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding National Western Life 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 National Western 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 National Western Life 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 National Western i.e., National Western and American Equity go up and down completely randomly.

Pair Corralation between National Western and American Equity

Given the investment horizon of 90 days National Western Life is expected to under-perform the American Equity. But the stock apears to be less risky and, when comparing its historical volatility, National Western Life is 2.17 times less risky than American Equity. The stock trades about -0.18 of its potential returns per unit of risk. The American Equity Investment is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  5,574  in American Equity Investment on February 3, 2024 and sell it today you would earn a total of  73.00  from holding American Equity Investment or generate 1.31% return on investment over 90 days.

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

National Western Life  vs.  American Equity Investment

National Western Life

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in National Western Life are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong essential indicators, National Western is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

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 recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with National Western and American Equity

The main advantage of trading using opposite National Western and American Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Western 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 National Western Life 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.

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.