Correlation Between Aspen Insurance and Chubb

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

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

Diversification Opportunities for Aspen Insurance and Chubb

0.16

Correlation Coefficient

Aspen Insurance  Chubb

Average diversification

The 3 months correlation between Aspen and Chubb is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Aspen Insurance Holdings and Chubb in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chubb and Aspen 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 Aspen Insurance Holdings are associated (or correlated) with Chubb. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chubb has no effect on the direction of Aspen Insurance i.e., Aspen Insurance and Chubb go up and down completely randomly.

Pair Corralation between Aspen Insurance and Chubb

Assuming the 90 days trading horizon Aspen Insurance Holdings is expected to generate 1.85 times more return on investment than Chubb. However, Aspen Insurance is 1.85 times more volatile than Chubb. It trades about -0.08 of its potential returns per unit of risk. Chubb is currently generating about -0.19 per unit of risk. If you would invest  2,057  in Aspen Insurance Holdings on September 19, 2024 and sell it today you would lose (55.00) from holding Aspen Insurance Holdings or give up 2.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Aspen Insurance Holdings  vs.  Chubb

Aspen Insurance Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aspen Insurance Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Aspen Insurance is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Chubb

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chubb has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Chubb is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Aspen Insurance and Chubb

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

The idea behind Aspen Insurance Holdings and Chubb 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.