Correlation Between ABBEY MORTGAGE and CORNERSTONE INSURANCE

Can any of the company-specific risk be diversified away by investing in both ABBEY MORTGAGE and CORNERSTONE 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 ABBEY MORTGAGE and CORNERSTONE INSURANCE into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ABBEY MORTGAGE BANK and CORNERSTONE INSURANCE PLC, you can compare the effects of market volatilities on ABBEY MORTGAGE and CORNERSTONE 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 ABBEY MORTGAGE with a short position of CORNERSTONE INSURANCE. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABBEY MORTGAGE and CORNERSTONE INSURANCE.

Diversification Opportunities for ABBEY MORTGAGE and CORNERSTONE INSURANCE

0.72

Correlation Coefficient

ABBEY MORTGAGE  CORNERSTONE INSURANCE

Poor diversification

The 3 months correlation between ABBEY and CORNERSTONE is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding ABBEY MORTGAGE BANK and CORNERSTONE INSURANCE PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CORNERSTONE INSURANCE PLC and ABBEY MORTGAGE 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 ABBEY MORTGAGE BANK are associated (or correlated) with CORNERSTONE INSURANCE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CORNERSTONE INSURANCE PLC has no effect on the direction of ABBEY MORTGAGE i.e., ABBEY MORTGAGE and CORNERSTONE INSURANCE go up and down completely randomly.

Pair Corralation between ABBEY MORTGAGE and CORNERSTONE INSURANCE

Assuming the 90 days trading horizon ABBEY MORTGAGE is expected to generate 7.58 times less return on investment than CORNERSTONE INSURANCE. But when comparing it to its historical volatility, ABBEY MORTGAGE BANK is 1.23 times less risky than CORNERSTONE INSURANCE. It trades about 0.02 of its potential returns per unit of risk. CORNERSTONE INSURANCE PLC is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  271.00  in CORNERSTONE INSURANCE PLC on October 25, 2024 and sell it today you would earn a total of  111.00  from holding CORNERSTONE INSURANCE PLC or generate 40.96% return on investment over 90 days.

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

ABBEY MORTGAGE BANK  vs.  CORNERSTONE INSURANCE PLC

ABBEY MORTGAGE BANK

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ABBEY MORTGAGE BANK are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, ABBEY MORTGAGE is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

CORNERSTONE INSURANCE PLC

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CORNERSTONE INSURANCE PLC are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, CORNERSTONE INSURANCE unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ABBEY MORTGAGE and CORNERSTONE INSURANCE

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

The idea behind ABBEY MORTGAGE BANK and CORNERSTONE INSURANCE PLC 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.