Correlation Between Life Insurance and Power Finance

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

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

Diversification Opportunities for Life Insurance and Power Finance

0.31

Correlation Coefficient

Life Insurance  Power Finance

Weak diversification

The 3 months correlation between Life and Power is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Life Insurance and Power Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Finance and Life Insurance 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 Life Insurance are associated (or correlated) with Power Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Finance has no effect on the direction of Life Insurance i.e., Life Insurance and Power Finance go up and down completely randomly.

Pair Corralation between Life Insurance and Power Finance

Assuming the 90 days trading horizon Life Insurance is expected to generate 2.19 times less return on investment than Power Finance. But when comparing it to its historical volatility, Life Insurance is 1.4 times less risky than Power Finance. It trades about 0.05 of its potential returns per unit of risk. Power Finance is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  19,264  in Power Finance on April 25, 2025 and sell it today you would earn a total of  22,651  from holding Power Finance or generate 117.58% return on investment over 90 days.

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

Life Insurance  vs.  Power Finance

Life Insurance

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Life Insurance are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Life Insurance unveiled solid returns over the last few months and may actually be approaching a breakup point.

Power Finance

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Power Finance are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Power Finance is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Life Insurance and Power Finance

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

The idea behind Life Insurance and Power Finance 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.