Correlation Between Peninsula and IDI Insurance

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

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

Diversification Opportunities for Peninsula and IDI Insurance

0.91

Correlation Coefficient

Peninsula  IDI Insurance

Almost no diversification

The 3 months correlation between Peninsula and IDI is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Peninsula Group and IDI Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IDI Insurance and Peninsula 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 Peninsula Group are associated (or correlated) with IDI Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IDI Insurance has no effect on the direction of Peninsula i.e., Peninsula and IDI Insurance go up and down completely randomly.

Pair Corralation between Peninsula and IDI Insurance

Assuming the 90 days trading horizon Peninsula Group is expected to generate 0.7 times more return on investment than IDI Insurance. However, Peninsula Group is 1.42 times less risky than IDI Insurance. It trades about 0.42 of its potential returns per unit of risk. IDI Insurance is currently generating about 0.17 per unit of risk. If you would invest  16,392  in Peninsula Group on September 16, 2024 and sell it today you would earn a total of  5,388  from holding Peninsula Group or generate 32.87% return on investment over 90 days.

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

Peninsula Group  vs.  IDI Insurance

Peninsula Group

Risk-Adjusted Performance

32 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Peninsula Group are ranked lower than 32 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Peninsula sustained solid returns over the last few months and may actually be approaching a breakup point.

IDI Insurance

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in IDI Insurance are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, IDI Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Peninsula and IDI Insurance

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

The idea behind Peninsula Group and IDI 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.