Correlation Between Insignia Financial and Rea

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

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

Diversification Opportunities for Insignia Financial and Rea

0.49

Correlation Coefficient

Insignia Financial  Rea

Very weak diversification

The 3 months correlation between Insignia and Rea is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Insignia Financial and Rea Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rea Group and Insignia Financial 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 Insignia Financial are associated (or correlated) with Rea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rea Group has no effect on the direction of Insignia Financial i.e., Insignia Financial and Rea go up and down completely randomly.

Pair Corralation between Insignia Financial and Rea

Assuming the 90 days trading horizon Insignia Financial is expected to generate 2.12 times more return on investment than Rea. However, Insignia Financial is 2.12 times more volatile than Rea Group. It trades about 0.24 of its potential returns per unit of risk. Rea Group is currently generating about -0.21 per unit of risk. If you would invest  308.00  in Insignia Financial on October 7, 2024 and sell it today you would earn a total of  46.00  from holding Insignia Financial or generate 14.94% return on investment over 90 days.

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

Insignia Financial  vs.  Rea Group

Insignia Financial

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Insignia Financial are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak essential indicators, Insignia Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Rea Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rea Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Rea may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Insignia Financial and Rea

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

The idea behind Insignia Financial and Rea Group 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.