Correlation Between MetLife Preferred and AIA

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

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

Diversification Opportunities for MetLife Preferred and AIA

-0.55

Correlation Coefficient

MetLife Preferred  AIA

Excellent diversification

The 3 months correlation between MetLife and AIA is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding MetLife Preferred Stock and AIA Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AIA Group and MetLife Preferred 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 MetLife Preferred Stock are associated (or correlated) with AIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AIA Group has no effect on the direction of MetLife Preferred i.e., MetLife Preferred and AIA go up and down completely randomly.

Pair Corralation between MetLife Preferred and AIA

Assuming the 90 days trading horizon MetLife Preferred is expected to generate 4.59 times less return on investment than AIA. But when comparing it to its historical volatility, MetLife Preferred Stock is 7.32 times less risky than AIA. It trades about 0.05 of its potential returns per unit of risk. AIA Group is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  702.00  in AIA Group on September 14, 2024 and sell it today you would earn a total of  23.00  from holding AIA Group or generate 3.28% return on investment over 90 days.

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

MetLife Preferred Stock  vs.  AIA Group

MetLife Preferred Stock

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MetLife Preferred Stock are ranked lower than 4 (%) 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.

AIA Group

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AIA Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, AIA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with MetLife Preferred and AIA

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

The idea behind MetLife Preferred Stock and AIA 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.