Correlation Between American Coastal and Selective Insurance

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

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

Diversification Opportunities for American Coastal and Selective Insurance

-0.32

Correlation Coefficient

American Coastal  Selective Insurance

Very good diversification

The 3 months correlation between American and Selective is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding American Coastal Insurance and Selective Insurance Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Selective Insurance and American Coastal 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 American Coastal Insurance are associated (or correlated) with Selective Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Selective Insurance has no effect on the direction of American Coastal i.e., American Coastal and Selective Insurance go up and down completely randomly.

Pair Corralation between American Coastal and Selective Insurance

Given the investment horizon of 90 days American Coastal Insurance is expected to generate 7.03 times more return on investment than Selective Insurance. However, American Coastal is 7.03 times more volatile than Selective Insurance Group. It trades about 0.13 of its potential returns per unit of risk. Selective Insurance Group is currently generating about 0.05 per unit of risk. If you would invest  45.00  in American Coastal Insurance on September 2, 2024 and sell it today you would earn a total of  1,328  from holding American Coastal Insurance or generate 2951.11% return on investment over 90 days.

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

American Coastal Insurance  vs.  Selective Insurance Group

American Coastal Ins

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Coastal Insurance are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting forward indicators, American Coastal exhibited solid returns over the last few months and may actually be approaching a breakup point.

Selective Insurance

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Selective Insurance Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward indicators, Selective Insurance is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with American Coastal and Selective Insurance

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

The idea behind American Coastal Insurance and Selective Insurance 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.

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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.