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

0.48

Correlation Coefficient

Selective Insurance  Heritage Insurance

Very weak diversification

The 3 months correlation between Selective and Heritage is 0.48. 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

Assuming the 90 days horizon Selective Insurance Group is expected to under-perform the Heritage Insurance. But the preferred stock apears to be less risky and, when comparing its historical volatility, Selective Insurance Group is 2.39 times less risky than Heritage Insurance. The preferred stock trades about -0.05 of its potential returns per unit of risk. The Heritage Insurance Hldgs is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,236  in Heritage Insurance Hldgs on December 2, 2024 and sell it today you would lose (61.00) from holding Heritage Insurance Hldgs or give up 4.94% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
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. Even with relatively invariable forward indicators, Selective Insurance is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.