Correlation Between Reinsurance Group and China Communications

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

Diversification Opportunities for Reinsurance Group and China Communications

-0.42

Correlation Coefficient

Reinsurance Group  China Communications

Very good diversification

The 3 months correlation between Reinsurance and China is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Reinsurance Group of and China Communications Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Communications 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 China Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Communications has no effect on the direction of Reinsurance Group i.e., Reinsurance Group and China Communications go up and down completely randomly.

Pair Corralation between Reinsurance Group and China Communications

Assuming the 90 days trading horizon Reinsurance Group of is expected to generate 1.13 times more return on investment than China Communications. However, Reinsurance Group is 1.13 times more volatile than China Communications Services. It trades about 0.07 of its potential returns per unit of risk. China Communications Services is currently generating about 0.08 per unit of risk. If you would invest  20,800  in Reinsurance Group of on October 10, 2024 and sell it today you would earn a total of  400.00  from holding Reinsurance Group of or generate 1.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Reinsurance Group of  vs.  China Communications Services

Reinsurance Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Reinsurance Group of are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Reinsurance Group is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

China Communications

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Communications Services are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, China Communications is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Reinsurance Group and China Communications

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

The idea behind Reinsurance Group of and China Communications Services 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.