Correlation Between Selective Insurance and HCI

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

Diversification Opportunities for Selective Insurance and HCI

0.39

Correlation Coefficient

Selective Insurance  HCI

Weak diversification

The 3 months correlation between Selective and HCI is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Selective Insurance Group and HCI Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HCI Group 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 HCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HCI Group has no effect on the direction of Selective Insurance i.e., Selective Insurance and HCI go up and down completely randomly.

Pair Corralation between Selective Insurance and HCI

Given the investment horizon of 90 days Selective Insurance Group is expected to under-perform the HCI. But the stock apears to be less risky and, when comparing its historical volatility, Selective Insurance Group is 1.64 times less risky than HCI. The stock trades about -0.23 of its potential returns per unit of risk. The HCI Group is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  11,399  in HCI Group on October 11, 2024 and sell it today you would earn a total of  58.00  from holding HCI Group or generate 0.51% return on investment over 90 days.

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

Selective Insurance Group  vs.  HCI Group

Selective Insurance

Risk-Adjusted Performance

0 of 100

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 fairly strong technical and fundamental indicators, Selective Insurance is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

HCI Group

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HCI Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental indicators, HCI is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Selective Insurance and HCI

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

The idea behind Selective Insurance Group and HCI 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.

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