Correlation Between Argo Group and Universal Insurance

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

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

Diversification Opportunities for Argo Group and Universal Insurance

0.7

Correlation Coefficient

Argo Group  Universal Insurance

Poor diversification

The 3 months correlation between Argo and Universal is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Argo Group International and Universal Insurance Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Insurance and Argo Group 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 Argo Group International are associated (or correlated) with Universal Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Insurance has no effect on the direction of Argo Group i.e., Argo Group and Universal Insurance go up and down completely randomly.

Pair Corralation between Argo Group and Universal Insurance

Assuming the 90 days trading horizon Argo Group is expected to generate 7.65 times less return on investment than Universal Insurance. But when comparing it to its historical volatility, Argo Group International is 15.27 times less risky than Universal Insurance. It trades about 0.24 of its potential returns per unit of risk. Universal Insurance Holdings is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,041  in Universal Insurance Holdings on December 30, 2024 and sell it today you would earn a total of  293.00  from holding Universal Insurance Holdings or generate 14.36% return on investment over 90 days.

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

Argo Group International  vs.  Universal Insurance Holdings

Argo Group International

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Argo Group International are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Argo Group is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Universal Insurance

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Insurance Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent basic indicators, Universal Insurance exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Argo Group and Universal Insurance

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

The idea behind Argo Group International and Universal 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.