Correlation Between Malvern International and CATCo Reinsurance

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

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

Diversification Opportunities for Malvern International and CATCo Reinsurance

0.51

Correlation Coefficient

Malvern International  CATCo Reinsurance

Very weak diversification

The 3 months correlation between Malvern and CATCo is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Malvern International and CATCo Reinsurance Opportunitie in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CATCo Reinsurance and Malvern International 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 Malvern International 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 Malvern International i.e., Malvern International and CATCo Reinsurance go up and down completely randomly.

Pair Corralation between Malvern International and CATCo Reinsurance

Assuming the 90 days trading horizon Malvern International is expected to generate 2.96 times less return on investment than CATCo Reinsurance. But when comparing it to its historical volatility, Malvern International is 2.35 times less risky than CATCo Reinsurance. It trades about 0.1 of its potential returns per unit of risk. CATCo Reinsurance Opportunities is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,500  in CATCo Reinsurance Opportunities on September 12, 2024 and sell it today you would earn a total of  1,250  from holding CATCo Reinsurance Opportunities or generate 50.0% return on investment over 90 days.

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

Malvern International  vs.  CATCo Reinsurance Opportunitie

Malvern International

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Malvern International are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Malvern International unveiled solid returns over the last few months and may actually be approaching a breakup point.

CATCo Reinsurance

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CATCo Reinsurance Opportunities are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain 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 Malvern International and CATCo Reinsurance

The main advantage of trading using opposite Malvern International and CATCo Reinsurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Malvern International 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 Malvern International 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.

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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.