Correlation Between ProAssurance and Global Indemnity

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

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

Diversification Opportunities for ProAssurance and Global Indemnity

0.41

Correlation Coefficient

ProAssurance  Global Indemnity

Very weak diversification

The 3 months correlation between ProAssurance and Global is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding ProAssurance and Global Indemnity PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Indemnity PLC and ProAssurance 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 ProAssurance are associated (or correlated) with Global Indemnity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Indemnity PLC has no effect on the direction of ProAssurance i.e., ProAssurance and Global Indemnity go up and down completely randomly.

Pair Corralation between ProAssurance and Global Indemnity

Considering the 90-day investment horizon ProAssurance is expected to generate 137.8 times less return on investment than Global Indemnity. But when comparing it to its historical volatility, ProAssurance is 17.0 times less risky than Global Indemnity. It trades about 0.01 of its potential returns per unit of risk. Global Indemnity PLC is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,223  in Global Indemnity PLC on September 2, 2024 and sell it today you would earn a total of  1,416  from holding Global Indemnity PLC or generate 63.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.59%
Values	Daily Returns

ProAssurance  vs.  Global Indemnity PLC

ProAssurance

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ProAssurance are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ProAssurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Global Indemnity PLC

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Global Indemnity PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent essential indicators, Global Indemnity demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ProAssurance and Global Indemnity

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

The idea behind ProAssurance and Global Indemnity 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.