Correlation Between Chubb and White Mountains

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

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

Diversification Opportunities for Chubb and White Mountains

0.7

Correlation Coefficient

Chubb  White Mountains

Poor diversification

The 3 months correlation between Chubb and White is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Chubb and White Mountains Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on White Mountains Insurance and Chubb 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 Chubb are associated (or correlated) with White Mountains. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of White Mountains Insurance has no effect on the direction of Chubb i.e., Chubb and White Mountains go up and down completely randomly.

Pair Corralation between Chubb and White Mountains

Allowing for the 90-day total investment horizon Chubb is expected to under-perform the White Mountains. But the stock apears to be less risky and, when comparing its historical volatility, Chubb is 1.26 times less risky than White Mountains. The stock trades about -0.06 of its potential returns per unit of risk. The White Mountains Insurance is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  184,000  in White Mountains Insurance on November 19, 2024 and sell it today you would lose (1,382) from holding White Mountains Insurance or give up 0.75% of portfolio value over 90 days.

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

Chubb  vs.  White Mountains Insurance

Chubb

Risk-Adjusted Performance

Very Weak

Over the last 90 days Chubb has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

White Mountains Insurance

Risk-Adjusted Performance

Very Weak

Over the last 90 days White Mountains Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, White Mountains is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Chubb and White Mountains

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

The idea behind Chubb and White Mountains Insurance 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.