Correlation Between Allstate and MetLife Preferred

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

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

Diversification Opportunities for Allstate and MetLife Preferred

0.97

Correlation Coefficient

Allstate  MetLife Preferred

Almost no diversification

The 3 months correlation between Allstate and MetLife is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding The Allstate 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 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 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 Allstate i.e., Allstate and MetLife Preferred go up and down completely randomly.

Pair Corralation between Allstate and MetLife Preferred

Assuming the 90 days trading horizon The Allstate is expected to under-perform the MetLife Preferred. But the preferred stock apears to be less risky and, when comparing its historical volatility, The Allstate is 1.1 times less risky than MetLife Preferred. The preferred stock trades about -0.29 of its potential returns per unit of risk. The MetLife Preferred Stock is currently generating about -0.19 of returns per unit of risk over similar time horizon. If you would invest  2,274  in MetLife Preferred Stock on September 24, 2024 and sell it today you would lose (238.00) from holding MetLife Preferred Stock or give up 10.47% of portfolio value over 90 days.

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

The Allstate  vs.  MetLife Preferred Stock

Allstate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Allstate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Preferred Stock's essential indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

MetLife Preferred Stock

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MetLife Preferred Stock has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Preferred Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Allstate and MetLife Preferred

The main advantage of trading using opposite Allstate and MetLife Preferred positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Allstate 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 The Allstate 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.