Correlation Between Selective Insurance and Aspen Insurance

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

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

Diversification Opportunities for Selective Insurance and Aspen Insurance

0.34

Correlation Coefficient

Selective Insurance  Aspen Insurance

Weak diversification

The 3 months correlation between Selective and Aspen is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Selective Insurance Group and Aspen Insurance Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aspen Insurance Holdings and Selective 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 Selective Insurance Group are associated (or correlated) with Aspen Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aspen Insurance Holdings has no effect on the direction of Selective Insurance i.e., Selective Insurance and Aspen Insurance go up and down completely randomly.

Pair Corralation between Selective Insurance and Aspen Insurance

Given the investment horizon of 90 days Selective Insurance Group is expected to generate 2.3 times more return on investment than Aspen Insurance. However, Selective Insurance is 2.3 times more volatile than Aspen Insurance Holdings. It trades about 0.14 of its potential returns per unit of risk. Aspen Insurance Holdings is currently generating about 0.15 per unit of risk. If you would invest  8,239  in Selective Insurance Group on December 4, 2024 and sell it today you would earn a total of  386.00  from holding Selective Insurance Group or generate 4.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Selective Insurance Group  vs.  Aspen Insurance Holdings

Selective Insurance

Risk-Adjusted Performance

Very Weak

Over the last 90 days Selective Insurance Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Aspen Insurance Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aspen Insurance Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Aspen Insurance is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Selective Insurance and Aspen Insurance

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

The idea behind Selective Insurance Group and Aspen Insurance Holdings 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.