Correlation Between Donegal Group and Safety Insurance

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

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

Diversification Opportunities for Donegal Group and Safety Insurance

0.08

Correlation Coefficient

Donegal Group  Safety Insurance

Significant diversification

The 3 months correlation between Donegal and Safety is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Donegal Group B and Safety Insurance Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Safety 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 B are associated (or correlated) with Safety Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Safety Insurance has no effect on the direction of Donegal Group i.e., Donegal Group and Safety Insurance go up and down completely randomly.

Pair Corralation between Donegal Group and Safety Insurance

Assuming the 90 days horizon Donegal Group B is expected to generate 2.28 times more return on investment than Safety Insurance. However, Donegal Group is 2.28 times more volatile than Safety Insurance Group. It trades about 0.02 of its potential returns per unit of risk. Safety Insurance Group is currently generating about -0.14 per unit of risk. If you would invest  1,434  in Donegal Group B on December 1, 2024 and sell it today you would earn a total of  14.00  from holding Donegal Group B or generate 0.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	76.67%
Values	Daily Returns

Donegal Group B  vs.  Safety Insurance Group

Donegal Group B

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Donegal Group B are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Donegal Group is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Safety Insurance

Risk-Adjusted Performance

Very Weak

Over the last 90 days Safety Insurance Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Donegal Group and Safety Insurance

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

The idea behind Donegal Group B and Safety Insurance Group 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.