Correlation Between Life Insurance and Thermax

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

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

Diversification Opportunities for Life Insurance and Thermax

0.16

Correlation Coefficient

Life Insurance  Thermax

Average diversification

The 3 months correlation between Life and Thermax is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Life Insurance and Thermax Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thermax Limited and Life 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 Life Insurance are associated (or correlated) with Thermax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thermax Limited has no effect on the direction of Life Insurance i.e., Life Insurance and Thermax go up and down completely randomly.

Pair Corralation between Life Insurance and Thermax

Assuming the 90 days trading horizon Life Insurance is expected to under-perform the Thermax. But the stock apears to be less risky and, when comparing its historical volatility, Life Insurance is 1.41 times less risky than Thermax. The stock trades about -0.09 of its potential returns per unit of risk. The Thermax Limited is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  520,700  in Thermax Limited on September 18, 2024 and sell it today you would lose (30,215) from holding Thermax Limited or give up 5.8% of portfolio value over 90 days.

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

Life Insurance  vs.  Thermax Limited

Life Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Life Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Thermax Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Thermax Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, Thermax is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Life Insurance and Thermax

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

The idea behind Life Insurance and Thermax 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.