Correlation Between East West and TPL Insurance

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

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

Diversification Opportunities for East West and TPL Insurance

0.26

Correlation Coefficient

East West  TPL Insurance

Modest diversification

The 3 months correlation between East and TPL is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding East West Insurance and TPL Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TPL Insurance and East West 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 East West Insurance are associated (or correlated) with TPL Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TPL Insurance has no effect on the direction of East West i.e., East West and TPL Insurance go up and down completely randomly.

Pair Corralation between East West and TPL Insurance

Assuming the 90 days trading horizon East West Insurance is expected to generate 0.73 times more return on investment than TPL Insurance. However, East West Insurance is 1.37 times less risky than TPL Insurance. It trades about 0.69 of its potential returns per unit of risk. TPL Insurance is currently generating about -0.01 per unit of risk. If you would invest  4,900  in East West Insurance on October 16, 2024 and sell it today you would earn a total of  829.00  from holding East West Insurance or generate 16.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	42.11%
Values	Daily Returns

East West Insurance  vs.  TPL Insurance

East West Insurance

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days East West Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, East West sustained solid returns over the last few months and may actually be approaching a breakup point.

TPL Insurance

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in TPL Insurance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, TPL Insurance may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with East West and TPL Insurance

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

The idea behind East West Insurance and TPL 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.