Correlation Between Construction and Insurance Portfolio

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

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

Diversification Opportunities for Construction and Insurance Portfolio

0.81

Correlation Coefficient

Construction  Insurance Portfolio

Very poor diversification

The 3 months correlation between Construction and Insurance is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Construction And Housing and Insurance Portfolio Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insurance Portfolio and Construction 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 Construction And Housing are associated (or correlated) with Insurance Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Insurance Portfolio has no effect on the direction of Construction i.e., Construction and Insurance Portfolio go up and down completely randomly.

Pair Corralation between Construction and Insurance Portfolio

Assuming the 90 days horizon Construction And Housing is expected to generate 0.92 times more return on investment than Insurance Portfolio. However, Construction And Housing is 1.09 times less risky than Insurance Portfolio. It trades about 0.04 of its potential returns per unit of risk. Insurance Portfolio Insurance is currently generating about 0.01 per unit of risk. If you would invest  12,814  in Construction And Housing on September 17, 2024 and sell it today you would earn a total of  304.00  from holding Construction And Housing or generate 2.37% return on investment over 90 days.

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

Construction And Housing  vs.  Insurance Portfolio Insurance

Construction And Housing

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Construction And Housing are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Construction is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Insurance Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Insurance Portfolio Insurance has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Insurance Portfolio is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Construction and Insurance Portfolio

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

The idea behind Construction And Housing and Insurance Portfolio 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.