Correlation Between Selective Insurance and Best Buy

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

Diversification Opportunities for Selective Insurance and Best Buy

-0.03

Correlation Coefficient

Selective Insurance  Best Buy

Good diversification

The 3 months correlation between Selective and Best is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Selective Insurance Group and Best Buy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Best Buy 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 Best Buy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Best Buy has no effect on the direction of Selective Insurance i.e., Selective Insurance and Best Buy go up and down completely randomly.

Pair Corralation between Selective Insurance and Best Buy

Assuming the 90 days horizon Selective Insurance Group is expected to under-perform the Best Buy. But the stock apears to be less risky and, when comparing its historical volatility, Selective Insurance Group is 1.02 times less risky than Best Buy. The stock trades about -0.19 of its potential returns per unit of risk. The Best Buy Co is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  8,222  in Best Buy Co on October 8, 2024 and sell it today you would earn a total of  126.00  from holding Best Buy Co or generate 1.53% return on investment over 90 days.

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

Selective Insurance Group  vs.  Best Buy Co

Selective Insurance

Risk-Adjusted Performance

4 of 100

Insignificant

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

Best Buy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Best Buy Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Best Buy 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 Best Buy

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

The idea behind Selective Insurance Group and Best Buy Co 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.