Correlation Between Safety Insurance and General Dynamics

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

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

Diversification Opportunities for Safety Insurance and General Dynamics

0.38

Correlation Coefficient

Safety Insurance  General Dynamics

Weak diversification

The 3 months correlation between Safety and General is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Safety Insurance Group and General Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Dynamics and Safety 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 Safety Insurance Group are associated (or correlated) with General Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Dynamics has no effect on the direction of Safety Insurance i.e., Safety Insurance and General Dynamics go up and down completely randomly.

Pair Corralation between Safety Insurance and General Dynamics

Assuming the 90 days horizon Safety Insurance Group is expected to under-perform the General Dynamics. In addition to that, Safety Insurance is 1.13 times more volatile than General Dynamics. It trades about -0.08 of its total potential returns per unit of risk. General Dynamics is currently generating about -0.02 per unit of volatility. If you would invest  25,315  in General Dynamics on December 20, 2024 and sell it today you would lose (585.00) from holding General Dynamics or give up 2.31% of portfolio value over 90 days.

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

Safety Insurance Group  vs.  General Dynamics

Safety Insurance

Risk-Adjusted Performance

Very Weak

Over the last 90 days Safety Insurance Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

General Dynamics

Risk-Adjusted Performance

Very Weak

Over the last 90 days General Dynamics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, General Dynamics is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Safety Insurance and General Dynamics

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

The idea behind Safety Insurance Group and General Dynamics 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.