Correlation Between Selective Insurance and Autohome ADR

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

Diversification Opportunities for Selective Insurance and Autohome ADR

-0.6

Correlation Coefficient

Selective Insurance  Autohome ADR

Excellent diversification

The 3 months correlation between Selective and Autohome is -0.6. 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 ADR. 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 ADR go up and down completely randomly.

Pair Corralation between Selective Insurance and Autohome ADR

Assuming the 90 days horizon Selective Insurance is expected to generate 3.6 times less return on investment than Autohome ADR. In addition to that, Selective Insurance is 1.08 times more volatile than Autohome ADR. It trades about 0.01 of its total potential returns per unit of risk. Autohome ADR is currently generating about 0.06 per unit of volatility. If you would invest  2,302  in Autohome ADR on December 30, 2024 and sell it today you would earn a total of  198.00  from holding Autohome ADR or generate 8.6% 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

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Selective Insurance Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Selective Insurance is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Autohome ADR

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Autohome ADR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical indicators, Autohome ADR may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Selective Insurance and Autohome ADR

The main advantage of trading using opposite Selective Insurance and Autohome ADR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Selective Insurance position performs unexpectedly, Autohome ADR 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 ADR will offset losses from the drop in Autohome ADR'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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.