Correlation Between Mapfre SA and Lancashire Holdings

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

By analyzing existing cross correlation between Mapfre SA and Lancashire Holdings Limited, you can compare the effects of market volatilities on Mapfre SA and Lancashire Holdings 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 Mapfre SA with a short position of Lancashire Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mapfre SA and Lancashire Holdings.

Diversification Opportunities for Mapfre SA and Lancashire Holdings

0.02

Correlation Coefficient

Mapfre SA  Lancashire Holdings

Significant diversification

The 3 months correlation between Mapfre and Lancashire is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Mapfre SA and Lancashire Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lancashire Holdings and Mapfre SA 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 Mapfre SA are associated (or correlated) with Lancashire Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lancashire Holdings has no effect on the direction of Mapfre SA i.e., Mapfre SA and Lancashire Holdings go up and down completely randomly.

Pair Corralation between Mapfre SA and Lancashire Holdings

Assuming the 90 days trading horizon Mapfre SA is expected to generate 2.49 times less return on investment than Lancashire Holdings. But when comparing it to its historical volatility, Mapfre SA is 1.92 times less risky than Lancashire Holdings. It trades about 0.06 of its potential returns per unit of risk. Lancashire Holdings Limited is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  740.00  in Lancashire Holdings Limited on September 17, 2024 and sell it today you would earn a total of  75.00  from holding Lancashire Holdings Limited or generate 10.14% return on investment over 90 days.

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

Mapfre SA  vs.  Lancashire Holdings Limited

Mapfre SA

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mapfre SA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Mapfre SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Lancashire Holdings

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lancashire Holdings Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Lancashire Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Mapfre SA and Lancashire Holdings

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

The idea behind Mapfre SA and Lancashire Holdings Limited 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.