Correlation Between General Insurance and Indian Overseas

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

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

Diversification Opportunities for General Insurance and Indian Overseas

0.7

Correlation Coefficient

General Insurance  Indian Overseas

Poor diversification

The 3 months correlation between General and Indian is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding General Insurance and Indian Overseas Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Overseas Bank and General Insurance 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 General Insurance are associated (or correlated) with Indian Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indian Overseas Bank has no effect on the direction of General Insurance i.e., General Insurance and Indian Overseas go up and down completely randomly.

Pair Corralation between General Insurance and Indian Overseas

Assuming the 90 days trading horizon General Insurance is expected to generate 1.0 times more return on investment than Indian Overseas. However, General Insurance is 1.0 times more volatile than Indian Overseas Bank. It trades about -0.02 of its potential returns per unit of risk. Indian Overseas Bank is currently generating about -0.06 per unit of risk. If you would invest  48,055  in General Insurance on December 23, 2024 and sell it today you would lose (3,520) from holding General Insurance or give up 7.32% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

General Insurance  vs.  Indian Overseas Bank

General Insurance

Risk-Adjusted Performance

Very Weak

Over the last 90 days General Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, General Insurance is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Indian Overseas Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Indian Overseas Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with General Insurance and Indian Overseas

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

The idea behind General Insurance and Indian Overseas Bank 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.