Correlation Between Selective Insurance and IPG Photonics

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

Diversification Opportunities for Selective Insurance and IPG Photonics

0.15

Correlation Coefficient

Selective Insurance  IPG Photonics

Average diversification

The 3 months correlation between Selective and IPG is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Selective Insurance Group and IPG Photonics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IPG Photonics 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 IPG Photonics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IPG Photonics has no effect on the direction of Selective Insurance i.e., Selective Insurance and IPG Photonics go up and down completely randomly.

Pair Corralation between Selective Insurance and IPG Photonics

Given the investment horizon of 90 days Selective Insurance Group is expected to generate 0.72 times more return on investment than IPG Photonics. However, Selective Insurance Group is 1.39 times less risky than IPG Photonics. It trades about 0.01 of its potential returns per unit of risk. IPG Photonics is currently generating about -0.02 per unit of risk. If you would invest  8,773  in Selective Insurance Group on October 11, 2024 and sell it today you would earn a total of  329.00  from holding Selective Insurance Group or generate 3.75% return on investment over 90 days.

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

Selective Insurance Group  vs.  IPG Photonics

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.

IPG Photonics

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days IPG Photonics has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, IPG Photonics is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Selective Insurance and IPG Photonics

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

The idea behind Selective Insurance Group and IPG Photonics 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.