Correlation Between SOVEREIGN TRUST and CORONATION INSURANCE

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

By analyzing existing cross correlation between SOVEREIGN TRUST INSURANCE and CORONATION INSURANCE PLC, you can compare the effects of market volatilities on SOVEREIGN TRUST and CORONATION 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 SOVEREIGN TRUST with a short position of CORONATION INSURANCE. Check out your portfolio center. Please also check ongoing floating volatility patterns of SOVEREIGN TRUST and CORONATION INSURANCE.

Diversification Opportunities for SOVEREIGN TRUST and CORONATION INSURANCE

0.69

Correlation Coefficient

SOVEREIGN TRUST  CORONATION INSURANCE

Poor diversification

The 3 months correlation between SOVEREIGN and CORONATION is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding SOVEREIGN TRUST INSURANCE and CORONATION INSURANCE PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CORONATION INSURANCE PLC and SOVEREIGN TRUST 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 SOVEREIGN TRUST INSURANCE are associated (or correlated) with CORONATION INSURANCE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CORONATION INSURANCE PLC has no effect on the direction of SOVEREIGN TRUST i.e., SOVEREIGN TRUST and CORONATION INSURANCE go up and down completely randomly.

Pair Corralation between SOVEREIGN TRUST and CORONATION INSURANCE

Assuming the 90 days trading horizon SOVEREIGN TRUST is expected to generate 1.21 times less return on investment than CORONATION INSURANCE. In addition to that, SOVEREIGN TRUST is 1.15 times more volatile than CORONATION INSURANCE PLC. It trades about 0.12 of its total potential returns per unit of risk. CORONATION INSURANCE PLC is currently generating about 0.17 per unit of volatility. If you would invest  82.00  in CORONATION INSURANCE PLC on September 13, 2024 and sell it today you would earn a total of  39.00  from holding CORONATION INSURANCE PLC or generate 47.56% return on investment over 90 days.

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

SOVEREIGN TRUST INSURANCE  vs.  CORONATION INSURANCE PLC

SOVEREIGN TRUST INSURANCE

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SOVEREIGN TRUST INSURANCE are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, SOVEREIGN TRUST demonstrated solid returns over the last few months and may actually be approaching a breakup point.

CORONATION INSURANCE PLC

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CORONATION INSURANCE PLC are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent forward indicators, CORONATION INSURANCE showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SOVEREIGN TRUST and CORONATION INSURANCE

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

The idea behind SOVEREIGN TRUST INSURANCE and CORONATION INSURANCE PLC 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.