Correlation Between Loews Corp and Palomar Holdings

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

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

Diversification Opportunities for Loews Corp and Palomar Holdings

0.88

Correlation Coefficient

Loews Corp  Palomar Holdings

Very poor diversification

The 3 months correlation between Loews and Palomar is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Loews Corp and Palomar Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Palomar Holdings and Loews Corp 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 Loews Corp are associated (or correlated) with Palomar Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Palomar Holdings has no effect on the direction of Loews Corp i.e., Loews Corp and Palomar Holdings go up and down completely randomly.

Pair Corralation between Loews Corp and Palomar Holdings

Taking into account the 90-day investment horizon Loews Corp is expected to generate 1.78 times less return on investment than Palomar Holdings. But when comparing it to its historical volatility, Loews Corp is 1.78 times less risky than Palomar Holdings. It trades about 0.11 of its potential returns per unit of risk. Palomar Holdings is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  9,483  in Palomar Holdings on September 13, 2024 and sell it today you would earn a total of  1,362  from holding Palomar Holdings or generate 14.36% return on investment over 90 days.

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

Loews Corp  vs.  Palomar Holdings

Loews Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Loews Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating essential indicators, Loews Corp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Palomar Holdings

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Palomar Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak primary indicators, Palomar Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Loews Corp and Palomar Holdings

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

The idea behind Loews Corp and Palomar Holdings 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.