Correlation Between Aspen Insurance and Donegal Group

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

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

Diversification Opportunities for Aspen Insurance and Donegal Group

-0.51

Correlation Coefficient

Aspen Insurance  Donegal Group

Excellent diversification

The 3 months correlation between Aspen and Donegal is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Aspen Insurance Holdings and Donegal Group B in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Donegal Group B and Aspen 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 Aspen Insurance Holdings are associated (or correlated) with Donegal Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Donegal Group B has no effect on the direction of Aspen Insurance i.e., Aspen Insurance and Donegal Group go up and down completely randomly.

Pair Corralation between Aspen Insurance and Donegal Group

Assuming the 90 days trading horizon Aspen Insurance Holdings is expected to under-perform the Donegal Group. But the preferred stock apears to be less risky and, when comparing its historical volatility, Aspen Insurance Holdings is 4.57 times less risky than Donegal Group. The preferred stock trades about -0.29 of its potential returns per unit of risk. The Donegal Group B is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,445  in Donegal Group B on September 14, 2024 and sell it today you would earn a total of  15.00  from holding Donegal Group B or generate 1.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Aspen Insurance Holdings  vs.  Donegal Group B

Aspen Insurance Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aspen Insurance Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Aspen Insurance is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Donegal Group B

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Donegal Group B are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Donegal Group sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aspen Insurance and Donegal Group

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

The idea behind Aspen Insurance Holdings and Donegal Group B 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.