Correlation Between Selective Insurance and Hermès International

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

Diversification Opportunities for Selective Insurance and Hermès International

-0.15

Correlation Coefficient

Selective Insurance  Hermès International

Good diversification

The 3 months correlation between Selective and Hermès is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Selective Insurance Group and Herms International Socit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Herms International Socit 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 Hermès International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Herms International Socit has no effect on the direction of Selective Insurance i.e., Selective Insurance and Hermès International go up and down completely randomly.

Pair Corralation between Selective Insurance and Hermès International

Assuming the 90 days horizon Selective Insurance is expected to generate 5.15 times less return on investment than Hermès International. But when comparing it to its historical volatility, Selective Insurance Group is 1.02 times less risky than Hermès International. It trades about 0.01 of its potential returns per unit of risk. Herms International Socit is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  161,028  in Herms International Socit on October 5, 2024 and sell it today you would earn a total of  68,272  from holding Herms International Socit or generate 42.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Selective Insurance Group  vs.  Herms International Socit

Selective Insurance

Risk-Adjusted Performance

0 of 100

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.

Herms International Socit

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with Selective Insurance and Hermès International

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

The idea behind Selective Insurance Group and Herms International Socit 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.