Correlation Between Premier Insurance and Century Insurance

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

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

Diversification Opportunities for Premier Insurance and Century Insurance

-0.58

Correlation Coefficient

Premier Insurance  Century Insurance

Excellent diversification

The 3 months correlation between Premier and Century is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Premier Insurance and Century Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Insurance and Premier 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 Premier Insurance are associated (or correlated) with Century Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Insurance has no effect on the direction of Premier Insurance i.e., Premier Insurance and Century Insurance go up and down completely randomly.

Pair Corralation between Premier Insurance and Century Insurance

Assuming the 90 days trading horizon Premier Insurance is expected to under-perform the Century Insurance. In addition to that, Premier Insurance is 1.84 times more volatile than Century Insurance. It trades about -0.05 of its total potential returns per unit of risk. Century Insurance is currently generating about 0.28 per unit of volatility. If you would invest  2,792  in Century Insurance on October 10, 2024 and sell it today you would earn a total of  1,011  from holding Century Insurance or generate 36.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	93.22%
Values	Daily Returns

Premier Insurance  vs.  Century Insurance

Premier Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Premier Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Century Insurance

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Century Insurance are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Century Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Premier Insurance and Century Insurance

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

The idea behind Premier Insurance and Century 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.

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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.