Correlation Between Dover and Skyward Specialty

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

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

Diversification Opportunities for Dover and Skyward Specialty

0.69

Correlation Coefficient

Dover  Skyward Specialty

Poor diversification

The 3 months correlation between Dover and Skyward is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Dover and Skyward Specialty Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Skyward Specialty and Dover 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 Dover are associated (or correlated) with Skyward Specialty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Skyward Specialty has no effect on the direction of Dover i.e., Dover and Skyward Specialty go up and down completely randomly.

Pair Corralation between Dover and Skyward Specialty

Considering the 90-day investment horizon Dover is expected to generate 3.91 times less return on investment than Skyward Specialty. But when comparing it to its historical volatility, Dover is 1.71 times less risky than Skyward Specialty. It trades about 0.05 of its potential returns per unit of risk. Skyward Specialty Insurance is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,500  in Skyward Specialty Insurance on October 3, 2024 and sell it today you would earn a total of  3,554  from holding Skyward Specialty Insurance or generate 236.93% return on investment over 90 days.

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

Dover  vs.  Skyward Specialty Insurance

Dover

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dover has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Dover is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Skyward Specialty

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Skyward Specialty Insurance are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Skyward Specialty exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dover and Skyward Specialty

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

The idea behind Dover and Skyward Specialty 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.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.