Correlation Between MetLife and AIA Group

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

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

Diversification Opportunities for MetLife and AIA Group

0.07

Correlation Coefficient

MetLife  AIA Group

Significant diversification

The 3 months correlation between MetLife and AIA is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding MetLife and AIA Group Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AIA Group and MetLife 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 are associated (or correlated) with AIA Group. 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 i.e., MetLife and AIA Group go up and down completely randomly.

Pair Corralation between MetLife and AIA Group

Considering the 90-day investment horizon MetLife is expected to generate 0.9 times more return on investment than AIA Group. However, MetLife is 1.11 times less risky than AIA Group. It trades about 0.04 of its potential returns per unit of risk. AIA Group Ltd is currently generating about -0.08 per unit of risk. If you would invest  8,202  in MetLife on September 14, 2024 and sell it today you would earn a total of  96.00  from holding MetLife or generate 1.17% return on investment over 90 days.

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

MetLife  vs.  AIA Group Ltd

MetLife

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MetLife are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating technical and fundamental indicators, MetLife may actually be approaching a critical reversion point that can send shares even higher in January 2025.

AIA Group

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AIA Group Ltd are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong forward indicators, AIA Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with MetLife and AIA Group

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

The idea behind MetLife and AIA Group Ltd 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.