Correlation Between Reinsurance Group and Cars

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

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

Diversification Opportunities for Reinsurance Group and Cars

0.68

Correlation Coefficient

Reinsurance Group  Cars

Poor diversification

The 3 months correlation between Reinsurance and Cars is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Reinsurance Group of and Cars Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cars Inc and Reinsurance Group 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 Reinsurance Group of are associated (or correlated) with Cars. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cars Inc has no effect on the direction of Reinsurance Group i.e., Reinsurance Group and Cars go up and down completely randomly.

Pair Corralation between Reinsurance Group and Cars

Assuming the 90 days trading horizon Reinsurance Group of is expected to generate 0.84 times more return on investment than Cars. However, Reinsurance Group of is 1.2 times less risky than Cars. It trades about 0.2 of its potential returns per unit of risk. Cars Inc is currently generating about 0.05 per unit of risk. If you would invest  20,200  in Reinsurance Group of on October 26, 2024 and sell it today you would earn a total of  1,000.00  from holding Reinsurance Group of or generate 4.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Reinsurance Group of  vs.  Cars Inc

Reinsurance Group

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Reinsurance Group of are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Reinsurance Group may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Cars Inc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cars Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Cars reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Reinsurance Group and Cars

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

The idea behind Reinsurance Group of and Cars Inc 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.