Correlation Between Global Indemnity and Donegal Group

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

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

Diversification Opportunities for Global Indemnity and Donegal Group

-0.02

Correlation Coefficient

Global Indemnity  Donegal Group

Good diversification

The 3 months correlation between Global and Donegal is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Global Indemnity PLC and Donegal Group A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Donegal Group A and Global Indemnity 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 Global Indemnity PLC are associated (or correlated) with Donegal Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Donegal Group A has no effect on the direction of Global Indemnity i.e., Global Indemnity and Donegal Group go up and down completely randomly.

Pair Corralation between Global Indemnity and Donegal Group

Given the investment horizon of 90 days Global Indemnity PLC is expected to under-perform the Donegal Group. In addition to that, Global Indemnity is 1.45 times more volatile than Donegal Group A. It trades about -0.03 of its total potential returns per unit of risk. Donegal Group A is currently generating about 0.29 per unit of volatility. 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	96.72%
Values	Daily Returns

Global Indemnity PLC  vs.  Donegal Group A

Global Indemnity PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Global Indemnity PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong essential indicators, Global Indemnity is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

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.

Pair Trading with Global Indemnity and Donegal Group

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

The idea behind Global Indemnity PLC and Donegal Group A 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.