Correlation Between Zurich Insurance and ABB
Can any of the company-specific risk be diversified away by investing in both Zurich Insurance and ABB 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 Zurich Insurance and ABB into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Zurich Insurance Group and ABB, you can compare the effects of market volatilities on Zurich Insurance and ABB 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 Zurich Insurance with a short position of ABB. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zurich Insurance and ABB.
Diversification Opportunities for Zurich Insurance and ABB
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Zurich and ABB is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Zurich Insurance Group and ABB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB and Zurich 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 Zurich Insurance Group are associated (or correlated) with ABB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABB has no effect on the direction of Zurich Insurance i.e., Zurich Insurance and ABB go up and down completely randomly.
Pair Corralation between Zurich Insurance and ABB
Assuming the 90 days trading horizon Zurich Insurance is expected to generate 1.91 times less return on investment than ABB. But when comparing it to its historical volatility, Zurich Insurance Group is 1.49 times less risky than ABB. It trades about 0.07 of its potential returns per unit of risk. ABB is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 2,780 in ABB on August 27, 2024 and sell it today you would earn a total of 2,236 from holding ABB or generate 80.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Zurich Insurance Group vs. ABB
Performance |
| Timeline |
| Zurich Insurance |
| ABB |
Zurich Insurance and ABB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Zurich Insurance and ABB
The main advantage of trading using opposite Zurich Insurance and ABB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zurich Insurance position performs unexpectedly, ABB 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 ABB will offset losses from the drop in ABB's long position.| Zurich Insurance vs. Swiss Re AG | Zurich Insurance vs. Novartis AG | Zurich Insurance vs. Swiss Life Holding | Zurich Insurance vs. UBS Group AG |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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