Correlation Between Selective Insurance and Computershare

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

Diversification Opportunities for Selective Insurance and Computershare

0.73

Correlation Coefficient

Selective Insurance  Computershare

Poor diversification

The 3 months correlation between Selective and Computershare is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Selective Insurance Group and Computershare Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Computershare Limited 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 Computershare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Computershare Limited has no effect on the direction of Selective Insurance i.e., Selective Insurance and Computershare go up and down completely randomly.

Pair Corralation between Selective Insurance and Computershare

Assuming the 90 days horizon Selective Insurance is expected to generate 4.35 times less return on investment than Computershare. In addition to that, Selective Insurance is 1.11 times more volatile than Computershare Limited. It trades about 0.02 of its total potential returns per unit of risk. Computershare Limited is currently generating about 0.11 per unit of volatility. If you would invest  1,580  in Computershare Limited on September 23, 2024 and sell it today you would earn a total of  420.00  from holding Computershare Limited or generate 26.58% return on investment over 90 days.

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

Selective Insurance Group  vs.  Computershare Limited

Selective Insurance

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Selective Insurance Group are ranked lower than 6 (%) 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 January 2025.

Computershare Limited

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Computershare Limited are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Computershare reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Selective Insurance and Computershare

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

The idea behind Selective Insurance Group and Computershare Limited 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.