Correlation Between Carlyle and American Financial

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

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

Diversification Opportunities for Carlyle and American Financial

0.88

Correlation Coefficient

Carlyle  American Financial

Very poor diversification

The 3 months correlation between Carlyle and American is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding The Carlyle Group and American Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Financial and Carlyle 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 Carlyle Group are associated (or correlated) with American Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Financial has no effect on the direction of Carlyle i.e., Carlyle and American Financial go up and down completely randomly.

Pair Corralation between Carlyle and American Financial

Assuming the 90 days horizon The Carlyle Group is expected to under-perform the American Financial. In addition to that, Carlyle is 1.43 times more volatile than American Financial Group. It trades about -0.37 of its total potential returns per unit of risk. American Financial Group is currently generating about -0.51 per unit of volatility. If you would invest  2,420  in American Financial Group on September 26, 2024 and sell it today you would lose (181.00) from holding American Financial Group or give up 7.48% of portfolio value over 90 days.

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

The Carlyle Group  vs.  American Financial Group

Carlyle Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Carlyle Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's fundamental drivers remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

American Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Preferred Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Carlyle and American Financial

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

The idea behind The Carlyle Group and American Financial 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .