Correlation Between Utilities Portfolio and Insurance Portfolio

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

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

Diversification Opportunities for Utilities Portfolio and Insurance Portfolio

0.78

Correlation Coefficient

Utilities Portfolio  Insurance Portfolio

Poor diversification

The 3 months correlation between Utilities and Insurance is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Utilities Portfolio Utilities and Insurance Portfolio Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insurance Portfolio and Utilities Portfolio 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 Utilities Portfolio Utilities are associated (or correlated) with Insurance Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Insurance Portfolio has no effect on the direction of Utilities Portfolio i.e., Utilities Portfolio and Insurance Portfolio go up and down completely randomly.

Pair Corralation between Utilities Portfolio and Insurance Portfolio

Assuming the 90 days horizon Utilities Portfolio Utilities is expected to generate 1.18 times more return on investment than Insurance Portfolio. However, Utilities Portfolio is 1.18 times more volatile than Insurance Portfolio Insurance. It trades about 0.13 of its potential returns per unit of risk. Insurance Portfolio Insurance is currently generating about 0.12 per unit of risk. If you would invest  11,852  in Utilities Portfolio Utilities on September 11, 2024 and sell it today you would earn a total of  1,067  from holding Utilities Portfolio Utilities or generate 9.0% return on investment over 90 days.

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

Utilities Portfolio Utilities  vs.  Insurance Portfolio Insurance

Utilities Portfolio

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Utilities Portfolio Utilities are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Utilities Portfolio may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Insurance Portfolio

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Insurance Portfolio Insurance are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Insurance Portfolio may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Utilities Portfolio and Insurance Portfolio

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

The idea behind Utilities Portfolio Utilities and Insurance Portfolio 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.