Correlation Between Donegal Group and White Mountains

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

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

Diversification Opportunities for Donegal Group and White Mountains

-0.23

Correlation Coefficient

Donegal Group  White Mountains

Very good diversification

The 3 months correlation between Donegal and White is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Donegal Group A and White Mountains Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on White Mountains Insurance and Donegal 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 Donegal Group A are associated (or correlated) with White Mountains. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of White Mountains Insurance has no effect on the direction of Donegal Group i.e., Donegal Group and White Mountains go up and down completely randomly.

Pair Corralation between Donegal Group and White Mountains

Assuming the 90 days horizon Donegal Group A is expected to generate 1.1 times more return on investment than White Mountains. However, Donegal Group is 1.1 times more volatile than White Mountains Insurance. It trades about 0.29 of its potential returns per unit of risk. White Mountains Insurance is currently generating about 0.02 per unit of risk. If you would invest  1,519  in Donegal Group A on December 29, 2024 and sell it today you would earn a total of  422.00  from holding Donegal Group A or generate 27.78% return on investment over 90 days.

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

Donegal Group A  vs.  White Mountains Insurance

Donegal Group A

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Donegal Group A are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting fundamental indicators, Donegal Group sustained solid returns over the last few months and may actually be approaching a breakup point.

White Mountains Insurance

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in White Mountains Insurance are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, White Mountains is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Donegal Group and White Mountains

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

The idea behind Donegal Group A and White Mountains Insurance 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.