Correlation Between Dover and United Fire

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

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

Diversification Opportunities for Dover and United Fire

0.78

Correlation Coefficient

Dover  United Fire

Poor diversification

The 3 months correlation between Dover and United is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Dover and United Fire Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Fire Group 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 United Fire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Fire Group has no effect on the direction of Dover i.e., Dover and United Fire go up and down completely randomly.

Pair Corralation between Dover and United Fire

Considering the 90-day investment horizon Dover is expected to under-perform the United Fire. But the stock apears to be less risky and, when comparing its historical volatility, Dover is 1.61 times less risky than United Fire. The stock trades about -0.41 of its potential returns per unit of risk. The United Fire Group is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  3,031  in United Fire Group on September 24, 2024 and sell it today you would lose (114.00) from holding United Fire Group or give up 3.76% of portfolio value over 90 days.

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

Dover  vs.  United Fire Group

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 current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

United Fire Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United Fire Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental indicators, United Fire unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dover and United Fire

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

The idea behind Dover and United Fire 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.

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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.