Correlation Between Aspen Insurance and Selective Insurance

Can any of the company-specific risk be diversified away by investing in both Aspen Insurance 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 Aspen Insurance and Selective Insurance 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 Selective Insurance Group, you can compare the effects of market volatilities on Aspen Insurance 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 Aspen Insurance with a short position of Selective Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aspen Insurance and Selective Insurance.

Diversification Opportunities for Aspen Insurance and Selective Insurance

0.07

Correlation Coefficient

Aspen Insurance  Selective Insurance

Significant diversification

The 3 months correlation between Aspen and Selective is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Aspen Insurance Holdings and Selective Insurance Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Selective Insurance 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 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 Aspen Insurance i.e., Aspen Insurance and Selective Insurance go up and down completely randomly.

Pair Corralation between Aspen Insurance and Selective Insurance

Assuming the 90 days trading horizon Aspen Insurance is expected to generate 10.07 times less return on investment than Selective Insurance. But when comparing it to its historical volatility, Aspen Insurance Holdings is 1.12 times less risky than Selective Insurance. It trades about 0.01 of its potential returns per unit of risk. Selective Insurance Group is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,721  in Selective Insurance Group on December 30, 2024 and sell it today you would earn a total of  128.00  from holding Selective Insurance Group or generate 7.44% return on investment over 90 days.

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

Aspen Insurance Holdings  vs.  Selective Insurance Group

Aspen Insurance Holdings

Risk-Adjusted Performance

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.

Selective Insurance

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Selective Insurance Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating forward indicators, Selective Insurance may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Aspen Insurance and Selective Insurance

The main advantage of trading using opposite Aspen Insurance and Selective Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aspen Insurance 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 Aspen Insurance Holdings 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.