Correlation Between Münchener Rück and VITEC SOFTWARE

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

By analyzing existing cross correlation between Mnchener Rck AG and VITEC SOFTWARE GROUP, you can compare the effects of market volatilities on Münchener Rück and VITEC SOFTWARE 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 Münchener Rück with a short position of VITEC SOFTWARE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Münchener Rück and VITEC SOFTWARE.

Diversification Opportunities for Münchener Rück and VITEC SOFTWARE

0.69

Correlation Coefficient

Münchener Rück  VITEC SOFTWARE

Poor diversification

The 3 months correlation between Münchener and VITEC is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Mnchener Rck AG and VITEC SOFTWARE GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VITEC SOFTWARE GROUP and Münchener Rück 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 Mnchener Rck AG are associated (or correlated) with VITEC SOFTWARE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VITEC SOFTWARE GROUP has no effect on the direction of Münchener Rück i.e., Münchener Rück and VITEC SOFTWARE go up and down completely randomly.

Pair Corralation between Münchener Rück and VITEC SOFTWARE

Assuming the 90 days trading horizon Münchener Rück is expected to generate 3.43 times less return on investment than VITEC SOFTWARE. But when comparing it to its historical volatility, Mnchener Rck AG is 1.48 times less risky than VITEC SOFTWARE. It trades about 0.1 of its potential returns per unit of risk. VITEC SOFTWARE GROUP is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  4,116  in VITEC SOFTWARE GROUP on December 1, 2024 and sell it today you would earn a total of  1,254  from holding VITEC SOFTWARE GROUP or generate 30.47% return on investment over 90 days.

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

Mnchener Rck AG  vs.  VITEC SOFTWARE GROUP

Mnchener Rck AG

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mnchener Rck AG are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Münchener Rück may actually be approaching a critical reversion point that can send shares even higher in April 2025.

VITEC SOFTWARE GROUP

Risk-Adjusted Performance

Solid

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

Pair Trading with Münchener Rück and VITEC SOFTWARE

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

The idea behind Mnchener Rck AG and VITEC SOFTWARE 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.