Correlation Between Skyward Specialty and Lemonade

Can any of the company-specific risk be diversified away by investing in both Skyward Specialty 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 Skyward Specialty and Lemonade into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Skyward Specialty Insurance and Lemonade, you can compare the effects of market volatilities on Skyward Specialty 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 Skyward Specialty with a short position of Lemonade. Check out your portfolio center. Please also check ongoing floating volatility patterns of Skyward Specialty and Lemonade.

Diversification Opportunities for Skyward Specialty and Lemonade

0.85

Correlation Coefficient

Skyward Specialty  Lemonade

Very poor diversification

The 3 months correlation between Skyward and Lemonade is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Skyward Specialty Insurance and Lemonade in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lemonade and Skyward Specialty 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 Skyward Specialty Insurance 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 Skyward Specialty i.e., Skyward Specialty and Lemonade go up and down completely randomly.

Pair Corralation between Skyward Specialty and Lemonade

Given the investment horizon of 90 days Skyward Specialty is expected to generate 1.38 times less return on investment than Lemonade. But when comparing it to its historical volatility, Skyward Specialty Insurance is 2.54 times less risky than Lemonade. It trades about 0.09 of its potential returns per unit of risk. Lemonade is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,813  in Lemonade on October 26, 2024 and sell it today you would earn a total of  1,398  from holding Lemonade or generate 77.11% return on investment over 90 days.

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

Skyward Specialty Insurance  vs.  Lemonade

Skyward Specialty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Skyward Specialty Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Lemonade

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lemonade are ranked lower than 12 (%) 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 Skyward Specialty and Lemonade

The main advantage of trading using opposite Skyward Specialty and Lemonade positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Skyward Specialty 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 Skyward Specialty Insurance 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.

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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.