Correlation Between White Mountains and Peoples Insurance

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

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

Diversification Opportunities for White Mountains and Peoples Insurance

0.4

Correlation Coefficient

White Mountains  Peoples Insurance

Very weak diversification

The 3 months correlation between White and Peoples is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding White Mountains Insurance and The Peoples Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Peoples Insurance and White Mountains 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 White Mountains Insurance are associated (or correlated) with Peoples Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Peoples Insurance has no effect on the direction of White Mountains i.e., White Mountains and Peoples Insurance go up and down completely randomly.

Pair Corralation between White Mountains and Peoples Insurance

Considering the 90-day investment horizon White Mountains is expected to generate 9.16 times less return on investment than Peoples Insurance. But when comparing it to its historical volatility, White Mountains Insurance is 4.22 times less risky than Peoples Insurance. It trades about 0.04 of its potential returns per unit of risk. The Peoples Insurance is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3.65  in The Peoples Insurance on October 10, 2024 and sell it today you would earn a total of  32.35  from holding The Peoples Insurance or generate 886.3% return on investment over 90 days.

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

White Mountains Insurance  vs.  The Peoples Insurance

White Mountains Insurance

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in White Mountains Insurance are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, White Mountains is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Peoples Insurance

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with White Mountains and Peoples Insurance

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

The idea behind White Mountains Insurance and The Peoples 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.