Correlation Between Insurance Portfolio and Construction
Can any of the company-specific risk be diversified away by investing in both Insurance Portfolio and Construction 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 Construction 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 Construction And Housing, you can compare the effects of market volatilities on Insurance Portfolio and Construction 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 Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Insurance Portfolio and Construction.
Diversification Opportunities for Insurance Portfolio and Construction
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Insurance and Construction is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Insurance Portfolio Insurance and Construction And Housing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Construction And Housing 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 Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Construction And Housing has no effect on the direction of Insurance Portfolio i.e., Insurance Portfolio and Construction go up and down completely randomly.
Pair Corralation between Insurance Portfolio and Construction
Assuming the 90 days horizon Insurance Portfolio is expected to generate 1.22 times less return on investment than Construction. But when comparing it to its historical volatility, Insurance Portfolio Insurance is 1.36 times less risky than Construction. It trades about 0.12 of its potential returns per unit of risk. Construction And Housing is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 9,061 in Construction And Housing on August 25, 2024 and sell it today you would earn a total of 4,097 from holding Construction And Housing or generate 45.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Insurance Portfolio Insurance vs. Construction And Housing
Performance |
| Timeline |
| Insurance Portfolio |
| Construction And Housing |
Insurance Portfolio and Construction Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Insurance Portfolio and Construction
The main advantage of trading using opposite Insurance Portfolio and Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Insurance Portfolio position performs unexpectedly, Construction 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 Construction will offset losses from the drop in Construction's long position.The idea behind Insurance Portfolio Insurance and Construction And Housing 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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