Correlation Between Optima Health and General Accident

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

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

Diversification Opportunities for Optima Health and General Accident

0.33

Correlation Coefficient

Optima Health  General Accident

Weak diversification

The 3 months correlation between Optima and General is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Optima Health plc and General Accident plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Accident plc and Optima Health 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 Optima Health plc are associated (or correlated) with General Accident. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Accident plc has no effect on the direction of Optima Health i.e., Optima Health and General Accident go up and down completely randomly.

Pair Corralation between Optima Health and General Accident

Assuming the 90 days trading horizon Optima Health plc is expected to under-perform the General Accident. In addition to that, Optima Health is 1.92 times more volatile than General Accident plc. It trades about -0.05 of its total potential returns per unit of risk. General Accident plc is currently generating about 0.06 per unit of volatility. If you would invest  10,169  in General Accident plc on October 21, 2024 and sell it today you would earn a total of  1,831  from holding General Accident plc or generate 18.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	16.03%
Values	Daily Returns

Optima Health plc  vs.  General Accident plc

Optima Health plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Optima Health plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

General Accident plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days General Accident plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, General Accident is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Optima Health and General Accident

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

The idea behind Optima Health plc and General Accident plc 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.