Correlation Between Global Indemnity and Heritage Insurance

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

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

Diversification Opportunities for Global Indemnity and Heritage Insurance

0.06

Correlation Coefficient

Global Indemnity  Heritage Insurance

Significant diversification

The 3 months correlation between Global and Heritage is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Global Indemnity PLC and Heritage Insurance Hldgs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heritage Insurance Hldgs and Global Indemnity 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 Global Indemnity PLC are associated (or correlated) with Heritage Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heritage Insurance Hldgs has no effect on the direction of Global Indemnity i.e., Global Indemnity and Heritage Insurance go up and down completely randomly.

Pair Corralation between Global Indemnity and Heritage Insurance

Given the investment horizon of 90 days Global Indemnity PLC is expected to generate 0.69 times more return on investment than Heritage Insurance. However, Global Indemnity PLC is 1.44 times less risky than Heritage Insurance. It trades about -0.02 of its potential returns per unit of risk. Heritage Insurance Hldgs is currently generating about -0.03 per unit of risk. If you would invest  3,604  in Global Indemnity PLC on November 29, 2024 and sell it today you would lose (108.00) from holding Global Indemnity PLC or give up 3.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.67%
Values	Daily Returns

Global Indemnity PLC  vs.  Heritage Insurance Hldgs

Global Indemnity PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Global Indemnity PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong essential indicators, Global Indemnity is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Heritage Insurance Hldgs

Risk-Adjusted Performance

Very Weak

Over the last 90 days Heritage Insurance Hldgs has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Heritage Insurance is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Global Indemnity and Heritage Insurance

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

The idea behind Global Indemnity PLC and Heritage Insurance Hldgs 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.