Correlation Between Transport and General Insurance

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

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

Diversification Opportunities for Transport and General Insurance

0.29

Correlation Coefficient

Transport  General Insurance

Modest diversification

The 3 months correlation between Transport and General is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Transport of and General Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Insurance and Transport 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 Transport of are associated (or correlated) with General Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Insurance has no effect on the direction of Transport i.e., Transport and General Insurance go up and down completely randomly.

Pair Corralation between Transport and General Insurance

Assuming the 90 days trading horizon Transport of is expected to under-perform the General Insurance. But the stock apears to be less risky and, when comparing its historical volatility, Transport of is 2.39 times less risky than General Insurance. The stock trades about -0.42 of its potential returns per unit of risk. The General Insurance is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  42,535  in General Insurance on October 12, 2024 and sell it today you would earn a total of  3,955  from holding General Insurance or generate 9.3% return on investment over 90 days.

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

Transport of  vs.  General Insurance

Transport

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Transport of are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Transport is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

General Insurance

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Insurance are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, General Insurance displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Transport and General Insurance

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

The idea behind Transport of and General Insurance 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.