Correlation Between Swiss Re and RenaissanceRe Holdings

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

By analyzing existing cross correlation between Swiss Re AG and RenaissanceRe Holdings, you can compare the effects of market volatilities on Swiss Re and RenaissanceRe Holdings 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 Swiss Re with a short position of RenaissanceRe Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Swiss Re and RenaissanceRe Holdings.

Diversification Opportunities for Swiss Re and RenaissanceRe Holdings

0.27

Correlation Coefficient

Swiss Re  RenaissanceRe Holdings

Modest diversification

The 3 months correlation between Swiss and RenaissanceRe is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Swiss Re AG and RenaissanceRe Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RenaissanceRe Holdings and Swiss Re 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 Swiss Re AG are associated (or correlated) with RenaissanceRe Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RenaissanceRe Holdings has no effect on the direction of Swiss Re i.e., Swiss Re and RenaissanceRe Holdings go up and down completely randomly.

Pair Corralation between Swiss Re and RenaissanceRe Holdings

Assuming the 90 days trading horizon Swiss Re AG is expected to generate 0.92 times more return on investment than RenaissanceRe Holdings. However, Swiss Re AG is 1.09 times less risky than RenaissanceRe Holdings. It trades about 0.1 of its potential returns per unit of risk. RenaissanceRe Holdings is currently generating about 0.06 per unit of risk. If you would invest  2,060  in Swiss Re AG on October 12, 2024 and sell it today you would earn a total of  1,560  from holding Swiss Re AG or generate 75.73% return on investment over 90 days.

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

Swiss Re AG  vs.  RenaissanceRe Holdings

Swiss Re AG

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Swiss Re AG are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Swiss Re reported solid returns over the last few months and may actually be approaching a breakup point.

RenaissanceRe Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RenaissanceRe Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, RenaissanceRe Holdings is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Swiss Re and RenaissanceRe Holdings

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

The idea behind Swiss Re AG and RenaissanceRe Holdings 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..