Correlation Between NVR and Swiss Re

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

By analyzing existing cross correlation between NVR Inc and Swiss Re AG, you can compare the effects of market volatilities on NVR and Swiss Re 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 NVR with a short position of Swiss Re. Check out your portfolio center. Please also check ongoing floating volatility patterns of NVR and Swiss Re.

Diversification Opportunities for NVR and Swiss Re

-0.8

Correlation Coefficient

NVR  Swiss Re

Pay attention - limited upside

The 3 months correlation between NVR and Swiss is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding NVR Inc and Swiss Re AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swiss Re AG and NVR 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 NVR Inc are associated (or correlated) with Swiss Re. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Swiss Re AG has no effect on the direction of NVR i.e., NVR and Swiss Re go up and down completely randomly.

Pair Corralation between NVR and Swiss Re

Assuming the 90 days horizon NVR Inc is expected to under-perform the Swiss Re. But the stock apears to be less risky and, when comparing its historical volatility, NVR Inc is 1.18 times less risky than Swiss Re. The stock trades about -0.18 of its potential returns per unit of risk. The Swiss Re AG is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3,460  in Swiss Re AG on December 25, 2024 and sell it today you would earn a total of  400.00  from holding Swiss Re AG or generate 11.56% return on investment over 90 days.

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

NVR Inc  vs.  Swiss Re AG

NVR Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days NVR Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Swiss Re AG

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Swiss Re AG are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Swiss Re reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NVR and Swiss Re

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

The idea behind NVR Inc and Swiss Re AG 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.