Correlation Between COFACE SA and China Reinsurance

Can any of the company-specific risk be diversified away by investing in both COFACE SA and China Reinsurance 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 COFACE SA and China Reinsurance into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between COFACE SA and China Reinsurance, you can compare the effects of market volatilities on COFACE SA and China Reinsurance 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 COFACE SA with a short position of China Reinsurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of COFACE SA and China Reinsurance.

Diversification Opportunities for COFACE SA and China Reinsurance

-0.11

Correlation Coefficient

COFACE SA  China Reinsurance

Good diversification

The 3 months correlation between COFACE and China is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding COFACE SA and China Reinsurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Reinsurance and COFACE SA 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 COFACE SA are associated (or correlated) with China Reinsurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Reinsurance has no effect on the direction of COFACE SA i.e., COFACE SA and China Reinsurance go up and down completely randomly.

Pair Corralation between COFACE SA and China Reinsurance

Assuming the 90 days horizon COFACE SA is expected to under-perform the China Reinsurance. But the stock apears to be less risky and, when comparing its historical volatility, COFACE SA is 3.91 times less risky than China Reinsurance. The stock trades about -0.16 of its potential returns per unit of risk. The China Reinsurance is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  9.35  in China Reinsurance on October 5, 2024 and sell it today you would earn a total of  0.65  from holding China Reinsurance or generate 6.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

COFACE SA  vs.  China Reinsurance

COFACE SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days COFACE SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, COFACE SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

China Reinsurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Reinsurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with COFACE SA and China Reinsurance

The main advantage of trading using opposite COFACE SA and China Reinsurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if COFACE SA position performs unexpectedly, China Reinsurance 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 China Reinsurance will offset losses from the drop in China Reinsurance's long position.

The idea behind COFACE SA and China Reinsurance 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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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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.