Correlation Between Selective Insurance and Autohome

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

Diversification Opportunities for Selective Insurance and Autohome

-0.7

Correlation Coefficient

Selective Insurance  Autohome

Excellent diversification

The 3 months correlation between Selective and Autohome is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Selective Insurance Group and Autohome ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Autohome ADR 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 Autohome. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Autohome ADR has no effect on the direction of Selective Insurance i.e., Selective Insurance and Autohome go up and down completely randomly.

Pair Corralation between Selective Insurance and Autohome

Assuming the 90 days horizon Selective Insurance Group is expected to under-perform the Autohome. In addition to that, Selective Insurance is 1.12 times more volatile than Autohome ADR. It trades about -0.05 of its total potential returns per unit of risk. Autohome ADR is currently generating about 0.07 per unit of volatility. If you would invest  2,454  in Autohome ADR on December 2, 2024 and sell it today you would earn a total of  246.00  from holding Autohome ADR or generate 10.02% return on investment over 90 days.

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

Selective Insurance Group  vs.  Autohome ADR

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 latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Autohome ADR

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Autohome ADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical indicators, Autohome reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Selective Insurance and Autohome

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

The idea behind Selective Insurance Group and Autohome ADR 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.