Correlation Between Allstate and AmTrust Financial
Can any of the company-specific risk be diversified away by investing in both Allstate and AmTrust 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 Allstate and AmTrust Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Allstate and AmTrust Financial Services, you can compare the effects of market volatilities on Allstate and AmTrust 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 Allstate with a short position of AmTrust Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Allstate and AmTrust Financial.
Diversification Opportunities for Allstate and AmTrust Financial
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Allstate and AmTrust is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding The Allstate and AmTrust Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AmTrust Financial and Allstate 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 Allstate are associated (or correlated) with AmTrust Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AmTrust Financial has no effect on the direction of Allstate i.e., Allstate and AmTrust Financial go up and down completely randomly.
Pair Corralation between Allstate and AmTrust Financial
Considering the 90-day investment horizon The Allstate is expected to generate 0.66 times more return on investment than AmTrust Financial. However, The Allstate is 1.51 times less risky than AmTrust Financial. It trades about 0.13 of its potential returns per unit of risk. AmTrust Financial Services is currently generating about 0.05 per unit of risk. If you would invest 10,847 in The Allstate on August 31, 2024 and sell it today you would earn a total of 9,892 from holding The Allstate or generate 91.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.73% |
| Values | Daily Returns |
The Allstate vs. AmTrust Financial Services
Performance |
| Timeline |
| Allstate |
| AmTrust Financial |
Allstate and AmTrust Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Allstate and AmTrust Financial
The main advantage of trading using opposite Allstate and AmTrust Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Allstate position performs unexpectedly, AmTrust 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 AmTrust Financial will offset losses from the drop in AmTrust Financial's long position.The idea behind The Allstate and AmTrust Financial Services 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.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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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