Correlation Between Heritage Insurance and Selective Insurance

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

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

Diversification Opportunities for Heritage Insurance and Selective Insurance

-0.43

Correlation Coefficient

Heritage Insurance  Selective Insurance

Very good diversification

The 3 months correlation between Heritage and Selective is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Heritage Insurance Hldgs and Selective Insurance Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Selective Insurance and Heritage Insurance 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 Heritage Insurance Hldgs are associated (or correlated) with Selective Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Selective Insurance has no effect on the direction of Heritage Insurance i.e., Heritage Insurance and Selective Insurance go up and down completely randomly.

Pair Corralation between Heritage Insurance and Selective Insurance

Given the investment horizon of 90 days Heritage Insurance Hldgs is expected to under-perform the Selective Insurance. In addition to that, Heritage Insurance is 3.39 times more volatile than Selective Insurance Group. It trades about -0.05 of its total potential returns per unit of risk. Selective Insurance Group is currently generating about 0.12 per unit of volatility. If you would invest  9,067  in Selective Insurance Group on September 2, 2024 and sell it today you would earn a total of  1,142  from holding Selective Insurance Group or generate 12.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Heritage Insurance Hldgs  vs.  Selective Insurance Group

Heritage Insurance Hldgs

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Heritage Insurance Hldgs has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Selective Insurance

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Selective Insurance Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical and fundamental indicators, Selective Insurance may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Heritage Insurance and Selective Insurance

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

The idea behind Heritage Insurance Hldgs and Selective Insurance 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.