Correlation Between General Insurance and Wonder Electricals

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

By analyzing existing cross correlation between General Insurance and Wonder Electricals Limited, you can compare the effects of market volatilities on General Insurance and Wonder Electricals 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 Wonder Electricals. Check out your portfolio center. Please also check ongoing floating volatility patterns of General Insurance and Wonder Electricals.

Diversification Opportunities for General Insurance and Wonder Electricals

-0.64

Correlation Coefficient

General Insurance  Wonder Electricals

Excellent diversification

The 3 months correlation between General and Wonder is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding General Insurance and Wonder Electricals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wonder Electricals 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 Wonder Electricals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wonder Electricals has no effect on the direction of General Insurance i.e., General Insurance and Wonder Electricals go up and down completely randomly.

Pair Corralation between General Insurance and Wonder Electricals

Assuming the 90 days trading horizon General Insurance is expected to under-perform the Wonder Electricals. But the stock apears to be less risky and, when comparing its historical volatility, General Insurance is 1.06 times less risky than Wonder Electricals. The stock trades about -0.02 of its potential returns per unit of risk. The Wonder Electricals Limited is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  15,729  in Wonder Electricals Limited on December 22, 2024 and sell it today you would earn a total of  1,522  from holding Wonder Electricals Limited or generate 9.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

General Insurance  vs.  Wonder Electricals Limited

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 recent stock price disarray, may contribute to short-term losses for the investors.

Wonder Electricals

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Wonder Electricals Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Wonder Electricals exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with General Insurance and Wonder Electricals

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

The idea behind General Insurance and Wonder Electricals Limited 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .