Correlation Between IDI Insurance and Itay Financial

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

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

Diversification Opportunities for IDI Insurance and Itay Financial

0.75

Correlation Coefficient

IDI Insurance  Itay Financial

Poor diversification

The 3 months correlation between IDI and Itay is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding IDI Insurance and Itay Financial AA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Itay Financial AA and IDI 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 IDI Insurance are associated (or correlated) with Itay Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Itay Financial AA has no effect on the direction of IDI Insurance i.e., IDI Insurance and Itay Financial go up and down completely randomly.

Pair Corralation between IDI Insurance and Itay Financial

Assuming the 90 days trading horizon IDI Insurance is expected to generate 0.67 times more return on investment than Itay Financial. However, IDI Insurance is 1.48 times less risky than Itay Financial. It trades about 0.11 of its potential returns per unit of risk. Itay Financial AA is currently generating about 0.03 per unit of risk. If you would invest  1,343,000  in IDI Insurance on October 12, 2024 and sell it today you would earn a total of  45,000  from holding IDI Insurance or generate 3.35% return on investment over 90 days.

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

IDI Insurance  vs.  Itay Financial AA

IDI Insurance

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in IDI Insurance are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, IDI Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Itay Financial AA

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Itay Financial AA are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Itay Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IDI Insurance and Itay Financial

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

The idea behind IDI Insurance and Itay Financial AA 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.