Correlation Between Refex Industries and General Insurance

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

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

Diversification Opportunities for Refex Industries and General Insurance

0.2

Correlation Coefficient

Refex Industries  General Insurance

Modest diversification

The 3 months correlation between Refex and General is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Refex Industries Limited and General Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Insurance and Refex Industries 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 Refex Industries Limited are associated (or correlated) with General Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Insurance has no effect on the direction of Refex Industries i.e., Refex Industries and General Insurance go up and down completely randomly.

Pair Corralation between Refex Industries and General Insurance

Assuming the 90 days trading horizon Refex Industries Limited is expected to under-perform the General Insurance. But the stock apears to be less risky and, when comparing its historical volatility, Refex Industries Limited is 1.34 times less risky than General Insurance. The stock trades about -0.03 of its potential returns per unit of risk. The General Insurance is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  36,315  in General Insurance on October 6, 2024 and sell it today you would earn a total of  9,455  from holding General Insurance or generate 26.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Refex Industries Limited  vs.  General Insurance

Refex Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Refex Industries Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Refex Industries is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

General Insurance

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in General Insurance are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, General Insurance displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Refex Industries and General Insurance

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

The idea behind Refex Industries Limited and General 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.