Correlation Between Swiss Re and Brookfield Reinsurance

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

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

Diversification Opportunities for Swiss Re and Brookfield Reinsurance

0.4

Correlation Coefficient

Swiss Re  Brookfield Reinsurance

Very weak diversification

The 3 months correlation between Swiss and Brookfield is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Swiss Re and Brookfield Reinsurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Reinsurance and Swiss Re 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 Swiss Re are associated (or correlated) with Brookfield Reinsurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield Reinsurance has no effect on the direction of Swiss Re i.e., Swiss Re and Brookfield Reinsurance go up and down completely randomly.

Pair Corralation between Swiss Re and Brookfield Reinsurance

Assuming the 90 days horizon Swiss Re is expected to generate 1.17 times less return on investment than Brookfield Reinsurance. But when comparing it to its historical volatility, Swiss Re is 1.32 times less risky than Brookfield Reinsurance. It trades about 0.09 of its potential returns per unit of risk. Brookfield Reinsurance is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,155  in Brookfield Reinsurance on September 19, 2024 and sell it today you would earn a total of  2,615  from holding Brookfield Reinsurance or generate 82.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.75%
Values	Daily Returns

Swiss Re  vs.  Brookfield Reinsurance

Swiss Re

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Swiss Re are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Swiss Re may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Brookfield Reinsurance

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Brookfield Reinsurance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather unsteady basic indicators, Brookfield Reinsurance exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Swiss Re and Brookfield Reinsurance

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

The idea behind Swiss Re and Brookfield Reinsurance 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.