Correlation Between Safety Insurance and WILLIS LEASE

Can any of the company-specific risk be diversified away by investing in both Safety Insurance and WILLIS LEASE 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 WILLIS LEASE 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 WILLIS LEASE FIN, you can compare the effects of market volatilities on Safety Insurance and WILLIS LEASE 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 WILLIS LEASE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Safety Insurance and WILLIS LEASE.

Diversification Opportunities for Safety Insurance and WILLIS LEASE

0.75

Correlation Coefficient

Safety Insurance  WILLIS LEASE

Poor diversification

The 3 months correlation between Safety and WILLIS is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Safety Insurance Group and WILLIS LEASE FIN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WILLIS LEASE FIN 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 WILLIS LEASE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WILLIS LEASE FIN has no effect on the direction of Safety Insurance i.e., Safety Insurance and WILLIS LEASE go up and down completely randomly.

Pair Corralation between Safety Insurance and WILLIS LEASE

Assuming the 90 days horizon Safety Insurance Group is expected to generate 0.46 times more return on investment than WILLIS LEASE. However, Safety Insurance Group is 2.17 times less risky than WILLIS LEASE. It trades about -0.09 of its potential returns per unit of risk. WILLIS LEASE FIN is currently generating about -0.05 per unit of risk. If you would invest  7,761  in Safety Insurance Group on December 21, 2024 and sell it today you would lose (661.00) from holding Safety Insurance Group or give up 8.52% of portfolio value over 90 days.

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

Safety Insurance Group  vs.  WILLIS LEASE FIN

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 unsteady 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.

WILLIS LEASE FIN

Risk-Adjusted Performance

Very Weak

Over the last 90 days WILLIS LEASE FIN has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady 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.

Pair Trading with Safety Insurance and WILLIS LEASE

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

The idea behind Safety Insurance Group and WILLIS LEASE FIN 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.