Correlation Between Insurance Portfolio and Leisure Portfolio
Can any of the company-specific risk be diversified away by investing in both Insurance Portfolio and Leisure Portfolio 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 Insurance Portfolio and Leisure Portfolio into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Insurance Portfolio Insurance and Leisure Portfolio Leisure, you can compare the effects of market volatilities on Insurance Portfolio and Leisure Portfolio 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 Insurance Portfolio with a short position of Leisure Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Insurance Portfolio and Leisure Portfolio.
Diversification Opportunities for Insurance Portfolio and Leisure Portfolio
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Insurance and Leisure is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Insurance Portfolio Insurance and Leisure Portfolio Leisure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leisure Portfolio Leisure and Insurance Portfolio 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 Insurance Portfolio Insurance are associated (or correlated) with Leisure Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leisure Portfolio Leisure has no effect on the direction of Insurance Portfolio i.e., Insurance Portfolio and Leisure Portfolio go up and down completely randomly.
Pair Corralation between Insurance Portfolio and Leisure Portfolio
Assuming the 90 days horizon Insurance Portfolio is expected to generate 1.19 times less return on investment than Leisure Portfolio. In addition to that, Insurance Portfolio is 1.28 times more volatile than Leisure Portfolio Leisure. It trades about 0.15 of its total potential returns per unit of risk. Leisure Portfolio Leisure is currently generating about 0.23 per unit of volatility. If you would invest 2,050 in Leisure Portfolio Leisure on November 3, 2024 and sell it today you would earn a total of 79.00 from holding Leisure Portfolio Leisure or generate 3.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Insurance Portfolio Insurance vs. Leisure Portfolio Leisure
Performance |
| Timeline |
| Insurance Portfolio |
| Leisure Portfolio Leisure |
Insurance Portfolio and Leisure Portfolio Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Insurance Portfolio and Leisure Portfolio
The main advantage of trading using opposite Insurance Portfolio and Leisure Portfolio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Insurance Portfolio position performs unexpectedly, Leisure Portfolio 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 Leisure Portfolio will offset losses from the drop in Leisure Portfolio's long position.The idea behind Insurance Portfolio Insurance and Leisure Portfolio Leisure 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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