Correlation Between Selective Insurance and Heritage Insurance

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

Diversification Opportunities for Selective Insurance and Heritage Insurance

0.44

Correlation Coefficient

Selective Insurance  Heritage Insurance

Very weak diversification

The 3 months correlation between Selective and Heritage is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Selective Insurance Group and Heritage Insurance Hldgs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heritage Insurance Hldgs 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 Heritage Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heritage Insurance Hldgs has no effect on the direction of Selective Insurance i.e., Selective Insurance and Heritage Insurance go up and down completely randomly.

Pair Corralation between Selective Insurance and Heritage Insurance

Given the investment horizon of 90 days Selective Insurance Group is expected to under-perform the Heritage Insurance. In addition to that, Selective Insurance is 1.16 times more volatile than Heritage Insurance Hldgs. It trades about -0.17 of its total potential returns per unit of risk. Heritage Insurance Hldgs is currently generating about 0.04 per unit of volatility. If you would invest  1,150  in Heritage Insurance Hldgs on November 29, 2024 and sell it today you would earn a total of  17.00  from holding Heritage Insurance Hldgs or generate 1.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Selective Insurance Group  vs.  Heritage Insurance Hldgs

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 weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in March 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Heritage Insurance Hldgs

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Selective Insurance and Heritage Insurance

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

The idea behind Selective Insurance Group and Heritage Insurance Hldgs 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.