Correlation Between Selective Insurance and Cars

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

Diversification Opportunities for Selective Insurance and Cars

0.39

Correlation Coefficient

Selective Insurance  Cars

Weak diversification

The 3 months correlation between Selective and Cars is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Selective Insurance Group and Cars Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cars Inc 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 Cars. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cars Inc has no effect on the direction of Selective Insurance i.e., Selective Insurance and Cars go up and down completely randomly.

Pair Corralation between Selective Insurance and Cars

Assuming the 90 days horizon Selective Insurance Group is expected to generate 0.87 times more return on investment than Cars. However, Selective Insurance Group is 1.15 times less risky than Cars. It trades about 0.0 of its potential returns per unit of risk. Cars Inc is currently generating about -0.13 per unit of risk. If you would invest  8,760  in Selective Insurance Group on December 27, 2024 and sell it today you would lose (410.00) from holding Selective Insurance Group or give up 4.68% of portfolio value over 90 days.

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

Selective Insurance Group  vs.  Cars Inc

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 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.

Cars Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cars Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Selective Insurance and Cars

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

The idea behind Selective Insurance Group and Cars Inc 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.