Correlation Between Great Elm and Verisk Analytics

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

By analyzing existing cross correlation between Great Elm Capital and Verisk Analytics, you can compare the effects of market volatilities on Great Elm and Verisk Analytics 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 Great Elm with a short position of Verisk Analytics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Great Elm and Verisk Analytics.

Diversification Opportunities for Great Elm and Verisk Analytics

0.69

Correlation Coefficient

Great Elm  Verisk Analytics

Poor diversification

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

Pair Corralation between Great Elm and Verisk Analytics

Assuming the 90 days horizon Great Elm is expected to generate 2.76 times less return on investment than Verisk Analytics. But when comparing it to its historical volatility, Great Elm Capital is 6.36 times less risky than Verisk Analytics. It trades about 0.14 of its potential returns per unit of risk. Verisk Analytics is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  27,628  in Verisk Analytics on December 21, 2024 and sell it today you would earn a total of  1,140  from holding Verisk Analytics or generate 4.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.31%
Values	Daily Returns

Great Elm Capital  vs.  Verisk Analytics

Great Elm Capital

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Great Elm Capital are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, Great Elm is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Verisk Analytics

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Verisk Analytics are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Verisk Analytics is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Great Elm and Verisk Analytics

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

The idea behind Great Elm Capital and Verisk Analytics 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.