Correlation Between EFU General and IGI Life

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

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

Diversification Opportunities for EFU General and IGI Life

0.75

Correlation Coefficient

EFU General  IGI Life

Poor diversification

The 3 months correlation between EFU and IGI is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding EFU General Insurance and IGI Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IGI Life Insurance and EFU General 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 EFU General Insurance are associated (or correlated) with IGI Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IGI Life Insurance has no effect on the direction of EFU General i.e., EFU General and IGI Life go up and down completely randomly.

Pair Corralation between EFU General and IGI Life

Assuming the 90 days trading horizon EFU General Insurance is expected to generate 0.7 times more return on investment than IGI Life. However, EFU General Insurance is 1.44 times less risky than IGI Life. It trades about 0.01 of its potential returns per unit of risk. IGI Life Insurance is currently generating about -0.05 per unit of risk. If you would invest  11,878  in EFU General Insurance on October 12, 2024 and sell it today you would earn a total of  1.00  from holding EFU General Insurance or generate 0.01% return on investment over 90 days.

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

EFU General Insurance  vs.  IGI Life Insurance

EFU General Insurance

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in EFU General Insurance are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, EFU General sustained solid returns over the last few months and may actually be approaching a breakup point.

IGI Life Insurance

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in IGI Life Insurance are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, IGI Life sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EFU General and IGI Life

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

The idea behind EFU General Insurance and IGI Life 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.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.