Correlation Between Allstate and Lemonade

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

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

Diversification Opportunities for Allstate and Lemonade

0.33

Correlation Coefficient

Allstate  Lemonade

Weak diversification

The 3 months correlation between Allstate and Lemonade is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding The Allstate and Lemonade in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lemonade 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 Lemonade. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lemonade has no effect on the direction of Allstate i.e., Allstate and Lemonade go up and down completely randomly.

Pair Corralation between Allstate and Lemonade

Considering the 90-day investment horizon The Allstate is expected to generate 0.34 times more return on investment than Lemonade. However, The Allstate is 2.95 times less risky than Lemonade. It trades about 0.08 of its potential returns per unit of risk. Lemonade is currently generating about -0.03 per unit of risk. If you would invest  19,159  in The Allstate on December 29, 2024 and sell it today you would earn a total of  1,486  from holding The Allstate or generate 7.76% return on investment over 90 days.

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

The Allstate  vs.  Lemonade

Allstate

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Allstate are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, Allstate may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Lemonade

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lemonade has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Allstate and Lemonade

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

The idea behind The Allstate and Lemonade 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.