Correlation Between Berkshire Hathaway and Swiss Re

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

By analyzing existing cross correlation between Berkshire Hathaway and Swiss Re AG, you can compare the effects of market volatilities on Berkshire Hathaway and Swiss Re 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 Swiss Re. Check out your portfolio center. Please also check ongoing floating volatility patterns of Berkshire Hathaway and Swiss Re.

Diversification Opportunities for Berkshire Hathaway and Swiss Re

-0.38

Correlation Coefficient

Berkshire Hathaway  Swiss Re

Very good diversification

The 3 months correlation between Berkshire and Swiss is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Berkshire Hathaway and Swiss Re AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swiss Re AG 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 Swiss Re. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Swiss Re AG has no effect on the direction of Berkshire Hathaway i.e., Berkshire Hathaway and Swiss Re go up and down completely randomly.

Pair Corralation between Berkshire Hathaway and Swiss Re

Assuming the 90 days horizon Berkshire Hathaway is expected to generate 69.76 times more return on investment than Swiss Re. However, Berkshire Hathaway is 69.76 times more volatile than Swiss Re AG. It trades about 0.14 of its potential returns per unit of risk. Swiss Re AG is currently generating about 0.15 per unit of risk. If you would invest  63,900,000  in Berkshire Hathaway on September 23, 2024 and sell it today you would earn a total of  850,000  from holding Berkshire Hathaway or generate 1.33% return on investment over 90 days.

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

Berkshire Hathaway  vs.  Swiss Re AG

Berkshire Hathaway

Risk-Adjusted Performance

9 of 100

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 fragile basic indicators, Berkshire Hathaway reported solid returns over the last few months and may actually be approaching a breakup point.

Swiss Re AG

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Swiss Re AG are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Swiss Re reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Berkshire Hathaway and Swiss Re

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

The idea behind Berkshire Hathaway and Swiss Re AG 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.