Correlation Between AIA and MetLife Preferred

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

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

Diversification Opportunities for AIA and MetLife Preferred

-0.58

Correlation Coefficient

AIA  MetLife Preferred

Excellent diversification

The 3 months correlation between AIA and MetLife is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding AIA Group and MetLife Preferred Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MetLife Preferred Stock and AIA 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 AIA Group are associated (or correlated) with MetLife Preferred. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MetLife Preferred Stock has no effect on the direction of AIA i.e., AIA and MetLife Preferred go up and down completely randomly.

Pair Corralation between AIA and MetLife Preferred

Assuming the 90 days horizon AIA Group is expected to generate 7.45 times more return on investment than MetLife Preferred. However, AIA is 7.45 times more volatile than MetLife Preferred Stock. It trades about 0.01 of its potential returns per unit of risk. MetLife Preferred Stock is currently generating about 0.05 per unit of risk. If you would invest  720.00  in AIA Group on September 19, 2024 and sell it today you would lose (15.00) from holding AIA Group or give up 2.08% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

AIA Group  vs.  MetLife Preferred Stock

AIA Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AIA Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, AIA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

MetLife Preferred Stock

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MetLife Preferred Stock are ranked lower than 3 (%) 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 latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with AIA and MetLife Preferred

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

The idea behind AIA Group and MetLife Preferred Stock 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.