Correlation Between SBI Life and Nippon Life

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

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

Diversification Opportunities for SBI Life and Nippon Life

-0.7

Correlation Coefficient

SBI Life  Nippon Life

Excellent diversification

The 3 months correlation between SBI and Nippon is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding SBI Life Insurance and Nippon Life India in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Life India and SBI Life 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 SBI Life Insurance are associated (or correlated) with Nippon Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nippon Life India has no effect on the direction of SBI Life i.e., SBI Life and Nippon Life go up and down completely randomly.

Pair Corralation between SBI Life and Nippon Life

Assuming the 90 days trading horizon SBI Life Insurance is expected to under-perform the Nippon Life. But the stock apears to be less risky and, when comparing its historical volatility, SBI Life Insurance is 1.77 times less risky than Nippon Life. The stock trades about -0.19 of its potential returns per unit of risk. The Nippon Life India is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  62,639  in Nippon Life India on October 8, 2024 and sell it today you would earn a total of  13,186  from holding Nippon Life India or generate 21.05% return on investment over 90 days.

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

SBI Life Insurance  vs.  Nippon Life India

SBI Life Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SBI Life Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's forward indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Nippon Life India

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nippon Life India are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, Nippon Life exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SBI Life and Nippon Life

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

The idea behind SBI Life Insurance and Nippon Life India 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.