Correlation Between Chubb and Global Indemnity

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

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

Diversification Opportunities for Chubb and Global Indemnity

-0.27

Correlation Coefficient

Chubb  Global Indemnity

Very good diversification

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

Pair Corralation between Chubb and Global Indemnity

Allowing for the 90-day total investment horizon Chubb is expected to under-perform the Global Indemnity. But the stock apears to be less risky and, when comparing its historical volatility, Chubb is 1.2 times less risky than Global Indemnity. The stock trades about -0.05 of its potential returns per unit of risk. The Global Indemnity PLC is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,275  in Global Indemnity PLC on September 12, 2024 and sell it today you would earn a total of  375.00  from holding Global Indemnity PLC or generate 11.45% return on investment over 90 days.

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

Chubb  vs.  Global Indemnity PLC

Chubb

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chubb has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Chubb is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Global Indemnity PLC

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Global Indemnity PLC are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak essential indicators, Global Indemnity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Chubb and Global Indemnity

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

The idea behind Chubb and Global Indemnity PLC 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.