Correlation Between Allstate and Palomar Holdings

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

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

Diversification Opportunities for Allstate and Palomar Holdings

-0.73

Correlation Coefficient

Allstate  Palomar Holdings

Pay attention - limited upside

The 3 months correlation between Allstate and Palomar is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding The Allstate and Palomar Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Palomar 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 Palomar Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Palomar Holdings has no effect on the direction of Allstate i.e., Allstate and Palomar Holdings go up and down completely randomly.

Pair Corralation between Allstate and Palomar Holdings

Assuming the 90 days trading horizon The Allstate is expected to generate 0.21 times more return on investment than Palomar Holdings. However, The Allstate is 4.68 times less risky than Palomar Holdings. It trades about 0.22 of its potential returns per unit of risk. Palomar Holdings is currently generating about -0.01 per unit of risk. If you would invest  2,648  in The Allstate on October 9, 2024 and sell it today you would earn a total of  46.00  from holding The Allstate or generate 1.74% return on investment over 90 days.

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

The Allstate  vs.  Palomar Holdings

Allstate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Allstate has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady essential indicators, Allstate is not utilizing all of its potentials. The current stock price chaos, may contribute to medium-term losses for the stakeholders.

Palomar Holdings

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Palomar Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating primary indicators, Palomar Holdings may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Allstate and Palomar Holdings

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

The idea behind The Allstate and Palomar 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.