Correlation Between Selective Insurance and Lion Financial

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

Diversification Opportunities for Selective Insurance and Lion Financial

0.45

Correlation Coefficient

Selective Insurance  Lion Financial

Very weak diversification

The 3 months correlation between Selective and Lion is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Selective Insurance Group and Lion Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lion Financial 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 Lion Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lion Financial Group has no effect on the direction of Selective Insurance i.e., Selective Insurance and Lion Financial go up and down completely randomly.

Pair Corralation between Selective Insurance and Lion Financial

Given the investment horizon of 90 days Selective Insurance Group is expected to under-perform the Lion Financial. But the stock apears to be less risky and, when comparing its historical volatility, Selective Insurance Group is 4.37 times less risky than Lion Financial. The stock trades about -0.17 of its potential returns per unit of risk. The Lion Financial Group is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  0.88  in Lion Financial Group on November 28, 2024 and sell it today you would lose (0.21) from holding Lion Financial Group or give up 23.86% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.31%
Values	Daily Returns

Selective Insurance Group  vs.  Lion Financial Group

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.

Lion Financial Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lion Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable essential indicators, Lion Financial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Selective Insurance and Lion Financial

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

The idea behind Selective Insurance Group and Lion Financial 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.

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 Equity Valuation module to check real value of public entities based on technical and fundamental data.