Correlation Between PSI Software and RenaissanceRe Holdings

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

By analyzing existing cross correlation between PSI Software AG and RenaissanceRe Holdings, you can compare the effects of market volatilities on PSI Software and RenaissanceRe Holdings 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 PSI Software with a short position of RenaissanceRe Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of PSI Software and RenaissanceRe Holdings.

Diversification Opportunities for PSI Software and RenaissanceRe Holdings

-0.18

Correlation Coefficient

PSI Software  RenaissanceRe Holdings

Good diversification

The 3 months correlation between PSI and RenaissanceRe is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding PSI Software AG and RenaissanceRe Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RenaissanceRe Holdings and PSI Software 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 PSI Software AG are associated (or correlated) with RenaissanceRe Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RenaissanceRe Holdings has no effect on the direction of PSI Software i.e., PSI Software and RenaissanceRe Holdings go up and down completely randomly.

Pair Corralation between PSI Software and RenaissanceRe Holdings

Assuming the 90 days trading horizon PSI Software AG is expected to under-perform the RenaissanceRe Holdings. But the stock apears to be less risky and, when comparing its historical volatility, PSI Software AG is 2.04 times less risky than RenaissanceRe Holdings. The stock trades about -0.09 of its potential returns per unit of risk. The RenaissanceRe Holdings is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  23,963  in RenaissanceRe Holdings on September 27, 2024 and sell it today you would lose (163.00) from holding RenaissanceRe Holdings or give up 0.68% of portfolio value over 90 days.

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

PSI Software AG  vs.  RenaissanceRe Holdings

PSI Software AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PSI Software AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, PSI Software is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

RenaissanceRe Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RenaissanceRe Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, RenaissanceRe Holdings is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with PSI Software and RenaissanceRe Holdings

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

The idea behind PSI Software AG and RenaissanceRe Holdings 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.