Correlation Between Lemonade and HCI

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

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

Diversification Opportunities for Lemonade and HCI

-0.3

Correlation Coefficient

Lemonade  HCI

Very good diversification

The 3 months correlation between Lemonade and HCI is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Lemonade and HCI Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HCI Group and Lemonade 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 Lemonade are associated (or correlated) with HCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HCI Group has no effect on the direction of Lemonade i.e., Lemonade and HCI go up and down completely randomly.

Pair Corralation between Lemonade and HCI

Given the investment horizon of 90 days Lemonade is expected to generate 1.9 times more return on investment than HCI. However, Lemonade is 1.9 times more volatile than HCI Group. It trades about 0.05 of its potential returns per unit of risk. HCI Group is currently generating about 0.08 per unit of risk. If you would invest  1,813  in Lemonade on October 26, 2024 and sell it today you would earn a total of  1,398  from holding Lemonade or generate 77.11% return on investment over 90 days.

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

Lemonade  vs.  HCI Group

Lemonade

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lemonade are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Lemonade exhibited solid returns over the last few months and may actually be approaching a breakup point.

HCI Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HCI Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady fundamental indicators, HCI may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Lemonade and HCI

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

The idea behind Lemonade and HCI 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.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.