Correlation Between Oil and TPL Insurance

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

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

Diversification Opportunities for Oil and TPL Insurance

-0.12

Correlation Coefficient

Oil  TPL Insurance

Good diversification

The 3 months correlation between Oil and TPL is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Oil and Gas and TPL Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TPL Insurance and Oil 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 Oil and Gas are associated (or correlated) with TPL Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TPL Insurance has no effect on the direction of Oil i.e., Oil and TPL Insurance go up and down completely randomly.

Pair Corralation between Oil and TPL Insurance

Assuming the 90 days trading horizon Oil and Gas is expected to generate 0.75 times more return on investment than TPL Insurance. However, Oil and Gas is 1.33 times less risky than TPL Insurance. It trades about 0.29 of its potential returns per unit of risk. TPL Insurance is currently generating about 0.05 per unit of risk. If you would invest  13,643  in Oil and Gas on September 13, 2024 and sell it today you would earn a total of  6,842  from holding Oil and Gas or generate 50.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Oil and Gas  vs.  TPL Insurance

Oil and Gas

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Oil and Gas are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Oil sustained solid returns over the last few months and may actually be approaching a breakup point.

TPL Insurance

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in TPL Insurance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, TPL Insurance may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Oil and TPL Insurance

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

The idea behind Oil and Gas and TPL 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.