Correlation Between W R and White Mountains

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

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

Diversification Opportunities for W R and White Mountains

-0.51

Correlation Coefficient

W R  White Mountains

Excellent diversification

The 3 months correlation between WRB-PE and White is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding W R Berkley and White Mountains Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on White Mountains Insurance and W R 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 W R Berkley are associated (or correlated) with White Mountains. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of White Mountains Insurance has no effect on the direction of W R i.e., W R and White Mountains go up and down completely randomly.

Pair Corralation between W R and White Mountains

Assuming the 90 days trading horizon W R Berkley is expected to under-perform the White Mountains. But the preferred stock apears to be less risky and, when comparing its historical volatility, W R Berkley is 2.21 times less risky than White Mountains. The preferred stock trades about -0.02 of its potential returns per unit of risk. The White Mountains Insurance is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  189,774  in White Mountains Insurance on September 19, 2024 and sell it today you would earn a total of  3,675  from holding White Mountains Insurance or generate 1.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

W R Berkley  vs.  White Mountains Insurance

W R Berkley

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days W R Berkley has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, W R is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

White Mountains Insurance

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in White Mountains Insurance are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, White Mountains may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with W R and White Mountains

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

The idea behind W R Berkley and White Mountains 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.

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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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.