Correlation Between Nippon Life and General Insurance

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

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

Diversification Opportunities for Nippon Life and General Insurance

0.69

Correlation Coefficient

Nippon Life  General Insurance

Poor diversification

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

Pair Corralation between Nippon Life and General Insurance

Assuming the 90 days trading horizon Nippon Life is expected to generate 1.39 times less return on investment than General Insurance. But when comparing it to its historical volatility, Nippon Life India is 1.33 times less risky than General Insurance. It trades about 0.14 of its potential returns per unit of risk. General Insurance is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  41,180  in General Insurance on October 5, 2024 and sell it today you would earn a total of  4,005  from holding General Insurance or generate 9.73% return on investment over 90 days.

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

Nippon Life India  vs.  General Insurance

Nippon Life India

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nippon Life India are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, Nippon Life exhibited solid returns over the last few months and may actually be approaching a breakup point.

General Insurance

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Insurance are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, General Insurance displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nippon Life and General Insurance

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

The idea behind Nippon Life India and General Insurance 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.