Correlation Between Palomar Holdings and Selective Insurance

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

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

Diversification Opportunities for Palomar Holdings and Selective Insurance

-0.38

Correlation Coefficient

Palomar Holdings  Selective Insurance

Very good diversification

The 3 months correlation between Palomar and Selective is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Palomar Holdings and Selective Insurance Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Selective Insurance and Palomar Holdings 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 Palomar Holdings 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 Palomar Holdings i.e., Palomar Holdings and Selective Insurance go up and down completely randomly.

Pair Corralation between Palomar Holdings and Selective Insurance

Given the investment horizon of 90 days Palomar Holdings is expected to generate 2.24 times more return on investment than Selective Insurance. However, Palomar Holdings is 2.24 times more volatile than Selective Insurance Group. It trades about 0.07 of its potential returns per unit of risk. Selective Insurance Group is currently generating about 0.05 per unit of risk. If you would invest  4,995  in Palomar Holdings on September 2, 2024 and sell it today you would earn a total of  5,835  from holding Palomar Holdings or generate 116.82% return on investment over 90 days.

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

Palomar Holdings  vs.  Selective Insurance Group

Palomar Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Palomar Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating primary indicators, Palomar Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Selective Insurance

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Selective Insurance Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward indicators, Selective Insurance is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Palomar Holdings and Selective Insurance

The main advantage of trading using opposite Palomar Holdings and Selective Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Palomar Holdings 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 Palomar Holdings 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.

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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.