Correlation Between Safety Insurance and Carsales

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

Diversification Opportunities for Safety Insurance and Carsales

0.63

Correlation Coefficient

Safety Insurance  Carsales

Poor diversification

The 3 months correlation between Safety and Carsales is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Safety Insurance Group and CarsalesCom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarsalesCom 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 Carsales. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CarsalesCom has no effect on the direction of Safety Insurance i.e., Safety Insurance and Carsales go up and down completely randomly.

Pair Corralation between Safety Insurance and Carsales

Assuming the 90 days horizon Safety Insurance Group is expected to generate 1.05 times more return on investment than Carsales. However, Safety Insurance is 1.05 times more volatile than CarsalesCom. It trades about 0.07 of its potential returns per unit of risk. CarsalesCom is currently generating about 0.04 per unit of risk. If you would invest  7,218  in Safety Insurance Group on October 24, 2024 and sell it today you would earn a total of  432.00  from holding Safety Insurance Group or generate 5.99% return on investment over 90 days.

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

Safety Insurance Group  vs.  CarsalesCom

Safety Insurance

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Safety Insurance Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Safety Insurance may actually be approaching a critical reversion point that can send shares even higher in February 2025.

CarsalesCom

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CarsalesCom are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Carsales is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Safety Insurance and Carsales

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

The idea behind Safety Insurance Group and CarsalesCom 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.