Correlation Between American Coastal and Global Franchise

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

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

Diversification Opportunities for American Coastal and Global Franchise

0.01

Correlation Coefficient

American Coastal  Global Franchise

Significant diversification

The 3 months correlation between American and Global is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding American Coastal Insurance and Global Franchise Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Franchise Por and American Coastal 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 Coastal Insurance are associated (or correlated) with Global Franchise. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Franchise Por has no effect on the direction of American Coastal i.e., American Coastal and Global Franchise go up and down completely randomly.

Pair Corralation between American Coastal and Global Franchise

Given the investment horizon of 90 days American Coastal Insurance is expected to generate 11.07 times more return on investment than Global Franchise. However, American Coastal is 11.07 times more volatile than Global Franchise Portfolio. It trades about 0.25 of its potential returns per unit of risk. Global Franchise Portfolio is currently generating about -0.1 per unit of risk. If you would invest  1,030  in American Coastal Insurance on August 15, 2024 and sell it today you would earn a total of  317.00  from holding American Coastal Insurance or generate 30.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

American Coastal Insurance  vs.  Global Franchise Portfolio

American Coastal Ins

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Coastal Insurance are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady forward indicators, American Coastal exhibited solid returns over the last few months and may actually be approaching a breakup point.

Global Franchise Por

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Global Franchise Portfolio are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Global Franchise 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 Coastal and Global Franchise

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

The idea behind American Coastal Insurance and Global Franchise Portfolio 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.