Correlation Between Life Insurance and Power Finance
Can any of the company-specific risk be diversified away by investing in both Life Insurance and Power Finance 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 Life Insurance and Power Finance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Life Insurance and Power Finance, you can compare the effects of market volatilities on Life Insurance and Power Finance 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 Life Insurance with a short position of Power Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Life Insurance and Power Finance.
Diversification Opportunities for Life Insurance and Power Finance
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Life and Power is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Life Insurance and Power Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Finance and Life 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 Life Insurance are associated (or correlated) with Power Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Finance has no effect on the direction of Life Insurance i.e., Life Insurance and Power Finance go up and down completely randomly.
Pair Corralation between Life Insurance and Power Finance
Assuming the 90 days trading horizon Life Insurance is expected to generate 0.59 times more return on investment than Power Finance. However, Life Insurance is 1.7 times less risky than Power Finance. It trades about -0.19 of its potential returns per unit of risk. Power Finance is currently generating about -0.17 per unit of risk. If you would invest 89,200 in Life Insurance on November 1, 2024 and sell it today you would lose (6,380) from holding Life Insurance or give up 7.15% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Life Insurance vs. Power Finance
Performance |
Timeline |
Life Insurance |
Power Finance |
Life Insurance and Power Finance Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Life Insurance and Power Finance
The main advantage of trading using opposite Life Insurance and Power Finance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Life Insurance position performs unexpectedly, Power Finance 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 Power Finance will offset losses from the drop in Power Finance's long position.Life Insurance vs. Vardhman Special Steels | ||
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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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
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