Correlation Between Swiss Re and Reinsurance

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Can any of the company-specific risk be diversified away by investing in both Swiss Re and 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 Reinsurance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Swiss Re AG and Reinsurance Group, you can compare the effects of market volatilities on Swiss Re and 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 Reinsurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Swiss Re and Reinsurance.

Diversification Opportunities for Swiss Re and Reinsurance

0.94
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Swiss and Reinsurance is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Swiss Re AG and Reinsurance Group Of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reinsurance Group 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 AG are associated (or correlated) with Reinsurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reinsurance Group has no effect on the direction of Swiss Re i.e., Swiss Re and Reinsurance go up and down completely randomly.

Pair Corralation between Swiss Re and Reinsurance

Assuming the 90 days horizon Swiss Re is expected to generate 1.39 times less return on investment than Reinsurance. In addition to that, Swiss Re is 1.19 times more volatile than Reinsurance Group. It trades about 0.31 of its total potential returns per unit of risk. Reinsurance Group is currently generating about 0.52 per unit of volatility. If you would invest  17,521  in Reinsurance Group on December 29, 2023 and sell it today you would earn a total of  1,767  from holding Reinsurance Group or generate 10.09% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Swiss Re AG  vs.  Reinsurance Group Of

 Performance 
       Timeline  
Swiss Re AG 

Risk-Adjusted Performance

20 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Swiss Re AG are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Swiss Re reported solid returns over the last few months and may actually be approaching a breakup point.
Reinsurance Group 

Risk-Adjusted Performance

23 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Reinsurance Group are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent technical and fundamental indicators, Reinsurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Swiss Re and Reinsurance Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Swiss Re and Reinsurance

The main advantage of trading using opposite Swiss Re and Reinsurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Swiss Re position performs unexpectedly, 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 Reinsurance will offset losses from the drop in Reinsurance's long position.
The idea behind Swiss Re AG and Reinsurance Group 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.

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