Correlation Between Berkshire Hathaway and American International

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

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

Diversification Opportunities for Berkshire Hathaway and American International

-0.35

Correlation Coefficient

Berkshire Hathaway  American International

Very good diversification

The 3 months correlation between Berkshire and American is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Berkshire Hathaway and American International Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American International and Berkshire Hathaway 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 Berkshire Hathaway are associated (or correlated) with American International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American International has no effect on the direction of Berkshire Hathaway i.e., Berkshire Hathaway and American International go up and down completely randomly.

Pair Corralation between Berkshire Hathaway and American International

Assuming the 90 days horizon Berkshire Hathaway is expected to generate 98.65 times more return on investment than American International. However, Berkshire Hathaway is 98.65 times more volatile than American International Group. It trades about 0.12 of its potential returns per unit of risk. American International Group is currently generating about 0.1 per unit of risk. If you would invest  61,050,000  in Berkshire Hathaway on September 29, 2024 and sell it today you would earn a total of  4,800,000  from holding Berkshire Hathaway or generate 7.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Berkshire Hathaway  vs.  American International Group

Berkshire Hathaway

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Berkshire Hathaway reported solid returns over the last few months and may actually be approaching a breakup point.

American International

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American International Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, American International may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Berkshire Hathaway and American International

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

The idea behind Berkshire Hathaway and American International Group 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.