Correlation Between Premier Insurance and National Refinery

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

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

Diversification Opportunities for Premier Insurance and National Refinery

-0.51

Correlation Coefficient

Premier Insurance  National Refinery

Excellent diversification

The 3 months correlation between Premier and National is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Premier Insurance and National Refinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Refinery 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 National Refinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Refinery has no effect on the direction of Premier Insurance i.e., Premier Insurance and National Refinery go up and down completely randomly.

Pair Corralation between Premier Insurance and National Refinery

Assuming the 90 days trading horizon Premier Insurance is expected to generate 2.59 times more return on investment than National Refinery. However, Premier Insurance is 2.59 times more volatile than National Refinery. It trades about 0.03 of its potential returns per unit of risk. National Refinery is currently generating about 0.05 per unit of risk. If you would invest  675.00  in Premier Insurance on September 13, 2024 and sell it today you would lose (81.00) from holding Premier Insurance or give up 12.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	66.39%
Values	Daily Returns

Premier Insurance  vs.  National Refinery

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 somewhat strong basic indicators, Premier Insurance is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

National Refinery

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in National Refinery are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, National Refinery reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Premier Insurance and National Refinery

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

The idea behind Premier Insurance and National Refinery 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.