Correlation Between HCI and ProAssurance

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

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

Diversification Opportunities for HCI and ProAssurance

0.63

Correlation Coefficient

HCI  ProAssurance

Poor diversification

The 3 months correlation between HCI and ProAssurance is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding HCI Group and ProAssurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProAssurance and HCI 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 HCI Group are associated (or correlated) with ProAssurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProAssurance has no effect on the direction of HCI i.e., HCI and ProAssurance go up and down completely randomly.

Pair Corralation between HCI and ProAssurance

Considering the 90-day investment horizon HCI is expected to generate 1.81 times less return on investment than ProAssurance. But when comparing it to its historical volatility, HCI Group is 3.29 times less risky than ProAssurance. It trades about 0.23 of its potential returns per unit of risk. ProAssurance is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,554  in ProAssurance on December 29, 2024 and sell it today you would earn a total of  780.00  from holding ProAssurance or generate 50.19% return on investment over 90 days.

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

HCI Group  vs.  ProAssurance

HCI Group

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HCI Group are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady fundamental indicators, HCI demonstrated solid returns over the last few months and may actually be approaching a breakup point.

ProAssurance

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ProAssurance are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ProAssurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HCI and ProAssurance

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

The idea behind HCI Group and ProAssurance 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.