Correlation Between Allstate and Brighthouse Financial

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

By analyzing existing cross correlation between The Allstate and Brighthouse Financial, you can compare the effects of market volatilities on Allstate and Brighthouse Financial 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 Allstate with a short position of Brighthouse Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Allstate and Brighthouse Financial.

Diversification Opportunities for Allstate and Brighthouse Financial

0.9

Correlation Coefficient

Allstate  Brighthouse Financial

Almost no diversification

The 3 months correlation between Allstate and Brighthouse is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding The Allstate and Brighthouse Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brighthouse Financial and Allstate 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 The Allstate are associated (or correlated) with Brighthouse Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brighthouse Financial has no effect on the direction of Allstate i.e., Allstate and Brighthouse Financial go up and down completely randomly.

Pair Corralation between Allstate and Brighthouse Financial

Assuming the 90 days trading horizon Allstate is expected to generate 1.78 times less return on investment than Brighthouse Financial. But when comparing it to its historical volatility, The Allstate is 1.4 times less risky than Brighthouse Financial. It trades about 0.14 of its potential returns per unit of risk. Brighthouse Financial is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2,012  in Brighthouse Financial on July 15, 2024 and sell it today you would earn a total of  67.00  from holding Brighthouse Financial or generate 3.33% return on investment over 90 days.

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

The Allstate  vs.  Brighthouse Financial

Allstate

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Allstate are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile essential indicators, Allstate may actually be approaching a critical reversion point that can send shares even higher in November 2024.

Brighthouse Financial

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Brighthouse Financial are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Brighthouse Financial may actually be approaching a critical reversion point that can send shares even higher in November 2024.

Pair Trading with Allstate and Brighthouse Financial

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

The idea behind The Allstate and Brighthouse Financial 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..