Correlation Between American Financial and Lemonade
Can any of the company-specific risk be diversified away by investing in both American Financial and Lemonade 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 American Financial and Lemonade into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Financial Group and Lemonade, you can compare the effects of market volatilities on American Financial and Lemonade 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 American Financial with a short position of Lemonade. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Financial and Lemonade.
Diversification Opportunities for American Financial and Lemonade
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between American and Lemonade is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding American Financial Group and Lemonade in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lemonade and American Financial 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 American Financial Group are associated (or correlated) with Lemonade. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lemonade has no effect on the direction of American Financial i.e., American Financial and Lemonade go up and down completely randomly.
Pair Corralation between American Financial and Lemonade
Considering the 90-day investment horizon American Financial is expected to generate 6.95 times less return on investment than Lemonade. But when comparing it to its historical volatility, American Financial Group is 3.88 times less risky than Lemonade. It trades about 0.11 of its potential returns per unit of risk. Lemonade is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 1,651 in Lemonade on August 29, 2024 and sell it today you would earn a total of 3,265 from holding Lemonade or generate 197.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Financial Group vs. Lemonade
Performance |
| Timeline |
| American Financial |
| Lemonade |
American Financial and Lemonade Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Financial and Lemonade
The main advantage of trading using opposite American Financial and Lemonade positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Financial position performs unexpectedly, Lemonade 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 Lemonade will offset losses from the drop in Lemonade's long position.| American Financial vs. Argo Group International | American Financial vs. Donegal Group A | American Financial vs. Selective Insurance Group |
| Lemonade vs. Argo Group International | Lemonade vs. Donegal Group A | Lemonade vs. Selective Insurance Group |
Check out your portfolio center.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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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