Correlation Between Century Insurance and Reliance Insurance

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

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

Diversification Opportunities for Century Insurance and Reliance Insurance

0.88

Correlation Coefficient

Century Insurance  Reliance Insurance

Very poor diversification

The 3 months correlation between Century and Reliance is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Century Insurance and Reliance Insurance Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Insurance and Century 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 Century Insurance are associated (or correlated) with Reliance Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reliance Insurance has no effect on the direction of Century Insurance i.e., Century Insurance and Reliance Insurance go up and down completely randomly.

Pair Corralation between Century Insurance and Reliance Insurance

Assuming the 90 days trading horizon Century Insurance is expected to generate 0.72 times more return on investment than Reliance Insurance. However, Century Insurance is 1.39 times less risky than Reliance Insurance. It trades about 0.11 of its potential returns per unit of risk. Reliance Insurance Co is currently generating about 0.08 per unit of risk. If you would invest  1,181  in Century Insurance on September 28, 2024 and sell it today you would earn a total of  2,543  from holding Century Insurance or generate 215.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	91.77%
Values	Daily Returns

Century Insurance  vs.  Reliance Insurance Co

Century Insurance

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Century Insurance are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Century Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Reliance Insurance

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Insurance Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Reliance Insurance may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Century Insurance and Reliance Insurance

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

The idea behind Century Insurance and Reliance Insurance Co 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.