Correlation Between Selective Insurance and Lemonade

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

Diversification Opportunities for Selective Insurance and Lemonade

0.5

Correlation Coefficient

Selective Insurance  Lemonade

Very weak diversification

The 3 months correlation between Selective and Lemonade is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Selective Insurance Group and Lemonade in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lemonade 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 Lemonade. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lemonade has no effect on the direction of Selective Insurance i.e., Selective Insurance and Lemonade go up and down completely randomly.

Pair Corralation between Selective Insurance and Lemonade

Given the investment horizon of 90 days Selective Insurance Group is expected to under-perform the Lemonade. But the stock apears to be less risky and, when comparing its historical volatility, Selective Insurance Group is 4.36 times less risky than Lemonade. The stock trades about -0.02 of its potential returns per unit of risk. The Lemonade is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,739  in Lemonade on October 11, 2024 and sell it today you would earn a total of  1,705  from holding Lemonade or generate 98.04% return on investment over 90 days.

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

Selective Insurance Group  vs.  Lemonade

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.

Lemonade

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lemonade are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Lemonade exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Selective Insurance and Lemonade

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

The idea behind Selective Insurance Group and Lemonade 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.