Correlation Between Berkshire Hathaway and Reinsurance Group

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

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

Diversification Opportunities for Berkshire Hathaway and Reinsurance Group

-0.55

Correlation Coefficient

Berkshire Hathaway  Reinsurance Group

Excellent diversification

The 3 months correlation between Berkshire and Reinsurance is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Berkshire Hathaway and Reinsurance Group of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reinsurance Group and Berkshire Hathaway 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 Berkshire Hathaway are associated (or correlated) with Reinsurance Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reinsurance Group has no effect on the direction of Berkshire Hathaway i.e., Berkshire Hathaway and Reinsurance Group go up and down completely randomly.

Pair Corralation between Berkshire Hathaway and Reinsurance Group

Assuming the 90 days horizon Berkshire Hathaway is expected to generate 0.7 times more return on investment than Reinsurance Group. However, Berkshire Hathaway is 1.43 times less risky than Reinsurance Group. It trades about 0.12 of its potential returns per unit of risk. Reinsurance Group of is currently generating about -0.1 per unit of risk. If you would invest  65,850,000  in Berkshire Hathaway on December 25, 2024 and sell it today you would earn a total of  6,750,000  from holding Berkshire Hathaway or generate 10.25% return on investment over 90 days.

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

Berkshire Hathaway  vs.  Reinsurance Group of

Berkshire Hathaway

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Berkshire Hathaway may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Reinsurance Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Reinsurance Group of 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 April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Berkshire Hathaway and Reinsurance Group

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

The idea behind Berkshire Hathaway and Reinsurance Group of 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.