Correlation Between Industrial Investment and Life Insurance
Can any of the company-specific risk be diversified away by investing in both Industrial Investment and Life Insurance 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 Industrial Investment and Life Insurance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Industrial Investment Trust and Life Insurance, you can compare the effects of market volatilities on Industrial Investment and Life Insurance 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 Industrial Investment with a short position of Life Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrial Investment and Life Insurance.
Diversification Opportunities for Industrial Investment and Life Insurance
0.36 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Industrial and Life is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Industrial Investment Trust and Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Life Insurance and Industrial Investment 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 Industrial Investment Trust are associated (or correlated) with Life Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Life Insurance has no effect on the direction of Industrial Investment i.e., Industrial Investment and Life Insurance go up and down completely randomly.
Pair Corralation between Industrial Investment and Life Insurance
Assuming the 90 days trading horizon Industrial Investment Trust is expected to generate 1.96 times more return on investment than Life Insurance. However, Industrial Investment is 1.96 times more volatile than Life Insurance. It trades about 0.01 of its potential returns per unit of risk. Life Insurance is currently generating about -0.33 per unit of risk. If you would invest 40,680 in Industrial Investment Trust on October 30, 2024 and sell it today you would lose (290.00) from holding Industrial Investment Trust or give up 0.71% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Industrial Investment Trust vs. Life Insurance
Performance |
| Timeline |
| Industrial Investment |
| Life Insurance |
Industrial Investment and Life Insurance Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Industrial Investment and Life Insurance
The main advantage of trading using opposite Industrial Investment and Life Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Industrial Investment position performs unexpectedly, Life Insurance 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 Life Insurance will offset losses from the drop in Life Insurance's long position.The idea behind Industrial Investment Trust and Life Insurance 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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