Correlation Between Fair Oaks and CATCo Reinsurance

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

By analyzing existing cross correlation between Fair Oaks Income and CATCo Reinsurance Opportunities, you can compare the effects of market volatilities on Fair Oaks and CATCo Reinsurance 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 Fair Oaks with a short position of CATCo Reinsurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fair Oaks and CATCo Reinsurance.

Diversification Opportunities for Fair Oaks and CATCo Reinsurance

0.68

Correlation Coefficient

Fair Oaks  CATCo Reinsurance

Poor diversification

The 3 months correlation between Fair and CATCo is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Fair Oaks Income and CATCo Reinsurance Opportunitie in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CATCo Reinsurance and Fair Oaks 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 Fair Oaks Income are associated (or correlated) with CATCo Reinsurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CATCo Reinsurance has no effect on the direction of Fair Oaks i.e., Fair Oaks and CATCo Reinsurance go up and down completely randomly.

Pair Corralation between Fair Oaks and CATCo Reinsurance

Assuming the 90 days trading horizon Fair Oaks is expected to generate 25.27 times less return on investment than CATCo Reinsurance. But when comparing it to its historical volatility, Fair Oaks Income is 6.4 times less risky than CATCo Reinsurance. It trades about 0.03 of its potential returns per unit of risk. CATCo Reinsurance Opportunities is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,400  in CATCo Reinsurance Opportunities on September 3, 2024 and sell it today you would earn a total of  1,350  from holding CATCo Reinsurance Opportunities or generate 56.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Fair Oaks Income  vs.  CATCo Reinsurance Opportunitie

Fair Oaks Income

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fair Oaks Income are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Fair Oaks is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

CATCo Reinsurance

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CATCo Reinsurance Opportunities are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, CATCo Reinsurance exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fair Oaks and CATCo Reinsurance

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

The idea behind Fair Oaks Income and CATCo Reinsurance Opportunities 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.