Correlation Between Ecclesiastical Insurance and London Security
Can any of the company-specific risk be diversified away by investing in both Ecclesiastical Insurance and London Security 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 Ecclesiastical Insurance and London Security into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ecclesiastical Insurance Office and London Security Plc, you can compare the effects of market volatilities on Ecclesiastical Insurance and London Security 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 Ecclesiastical Insurance with a short position of London Security. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ecclesiastical Insurance and London Security.
Diversification Opportunities for Ecclesiastical Insurance and London Security
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Ecclesiastical and London is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Ecclesiastical Insurance Offic and London Security Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on London Security Plc and Ecclesiastical Insurance 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 Ecclesiastical Insurance Office are associated (or correlated) with London Security. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of London Security Plc has no effect on the direction of Ecclesiastical Insurance i.e., Ecclesiastical Insurance and London Security go up and down completely randomly.
Pair Corralation between Ecclesiastical Insurance and London Security
Assuming the 90 days trading horizon Ecclesiastical Insurance Office is expected to under-perform the London Security. But the stock apears to be less risky and, when comparing its historical volatility, Ecclesiastical Insurance Office is 1.88 times less risky than London Security. The stock trades about -0.02 of its potential returns per unit of risk. The London Security Plc is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 340,000 in London Security Plc on November 7, 2024 and sell it today you would earn a total of 20,000 from holding London Security Plc or generate 5.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.24% |
| Values | Daily Returns |
Ecclesiastical Insurance Offic vs. London Security Plc
Performance |
| Timeline |
| Ecclesiastical Insurance |
| London Security Plc |
Ecclesiastical Insurance and London Security Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ecclesiastical Insurance and London Security
The main advantage of trading using opposite Ecclesiastical Insurance and London Security positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ecclesiastical Insurance position performs unexpectedly, London Security 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 London Security will offset losses from the drop in London Security's long position.The idea behind Ecclesiastical Insurance Office and London Security Plc 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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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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