Correlation Between PSI All and Trupanion

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

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

Diversification Opportunities for PSI All and Trupanion

-0.77

Correlation Coefficient

PSI All  Trupanion

Pay attention - limited upside

The 3 months correlation between PSI and Trupanion is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding PSI All Share and Trupanion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trupanion and PSI All 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 PSI All Share are associated (or correlated) with Trupanion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trupanion has no effect on the direction of PSI All i.e., PSI All and Trupanion go up and down completely randomly.

Pair Corralation between PSI All and Trupanion

Assuming the 90 days trading horizon PSI All Share is expected to under-perform the Trupanion. But the index apears to be less risky and, when comparing its historical volatility, PSI All Share is 3.33 times less risky than Trupanion. The index trades about -0.2 of its potential returns per unit of risk. The Trupanion is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  4,655  in Trupanion on September 16, 2024 and sell it today you would earn a total of  618.00  from holding Trupanion or generate 13.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.48%
Values	Daily Returns

PSI All Share  vs.  Trupanion

Pair Trading with PSI All and Trupanion

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

The idea behind PSI All Share and Trupanion 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.