Correlation Between Premier Insurance and Reliance Insurance

Can any of the company-specific risk be diversified away by investing in both Premier Insurance and Reliance 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 Reliance 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 Reliance Insurance Co, you can compare the effects of market volatilities on Premier Insurance and Reliance 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 Reliance Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Premier Insurance and Reliance Insurance.

Diversification Opportunities for Premier Insurance and Reliance Insurance

0.19

Correlation Coefficient

Premier Insurance  Reliance Insurance

Average diversification

The 3 months correlation between Premier and Reliance is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Premier Insurance and Reliance Insurance Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance 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 Reliance Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reliance Insurance has no effect on the direction of Premier Insurance i.e., Premier Insurance and Reliance Insurance go up and down completely randomly.

Pair Corralation between Premier Insurance and Reliance Insurance

Assuming the 90 days trading horizon Premier Insurance is expected to under-perform the Reliance Insurance. But the stock apears to be less risky and, when comparing its historical volatility, Premier Insurance is 1.07 times less risky than Reliance Insurance. The stock trades about -0.14 of its potential returns per unit of risk. The Reliance Insurance Co is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,090  in Reliance Insurance Co on December 5, 2024 and sell it today you would earn a total of  23.00  from holding Reliance Insurance Co or generate 2.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Premier Insurance  vs.  Reliance Insurance Co

Premier Insurance

Risk-Adjusted Performance

Very Weak

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

Reliance Insurance

Risk-Adjusted Performance

Very Weak

Over the last 90 days Reliance Insurance Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Reliance Insurance is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Premier Insurance and Reliance Insurance

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

The idea behind Premier Insurance and Reliance Insurance Co 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.