Correlation Between Allstate and Aspen Insurance

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

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

Diversification Opportunities for Allstate and Aspen Insurance

0.55

Correlation Coefficient

Allstate  Aspen Insurance

Very weak diversification

The 3 months correlation between Allstate and Aspen is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding The Allstate and Aspen Insurance Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aspen Insurance Holdings and Allstate 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 The Allstate are associated (or correlated) with Aspen Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aspen Insurance Holdings has no effect on the direction of Allstate i.e., Allstate and Aspen Insurance go up and down completely randomly.

Pair Corralation between Allstate and Aspen Insurance

Assuming the 90 days trading horizon The Allstate is expected to generate 0.48 times more return on investment than Aspen Insurance. However, The Allstate is 2.07 times less risky than Aspen Insurance. It trades about -0.04 of its potential returns per unit of risk. Aspen Insurance Holdings is currently generating about -0.06 per unit of risk. If you would invest  2,636  in The Allstate on December 1, 2024 and sell it today you would lose (36.00) from holding The Allstate or give up 1.37% of portfolio value over 90 days.

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

The Allstate  vs.  Aspen Insurance Holdings

Allstate

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Allstate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, Allstate is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Allstate and Aspen Insurance

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

The idea behind The Allstate and Aspen Insurance Holdings 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.