Correlation Between Reinsurance Group and Zoetis

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

Diversification Opportunities for Reinsurance Group and Zoetis

-0.16

Correlation Coefficient

Reinsurance Group  Zoetis

Good diversification

The 3 months correlation between Reinsurance and Zoetis is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Reinsurance Group of and Zoetis Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zoetis 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 Zoetis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zoetis Inc has no effect on the direction of Reinsurance Group i.e., Reinsurance Group and Zoetis go up and down completely randomly.

Pair Corralation between Reinsurance Group and Zoetis

Assuming the 90 days trading horizon Reinsurance Group of is expected to generate 1.1 times more return on investment than Zoetis. However, Reinsurance Group is 1.1 times more volatile than Zoetis Inc. It trades about 0.06 of its potential returns per unit of risk. Zoetis Inc is currently generating about 0.02 per unit of risk. If you would invest  12,640  in Reinsurance Group of on October 4, 2024 and sell it today you would earn a total of  7,560  from holding Reinsurance Group of or generate 59.81% return on investment over 90 days.

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

Reinsurance Group of  vs.  Zoetis Inc

Reinsurance Group

Risk-Adjusted Performance

3 of 100

Weak

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 fragile basic indicators, Reinsurance Group may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Zoetis Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zoetis Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Reinsurance Group and Zoetis

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

The idea behind Reinsurance Group of and Zoetis 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.

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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.