Correlation Between Selective Insurance and Safety Insurance

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

Diversification Opportunities for Selective Insurance and Safety Insurance

0.85

Correlation Coefficient

Selective Insurance  Safety Insurance

Very poor diversification

The 3 months correlation between Selective and Safety is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Selective Insurance Group and Safety Insurance Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Safety Insurance 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 Safety Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Safety Insurance has no effect on the direction of Selective Insurance i.e., Selective Insurance and Safety Insurance go up and down completely randomly.

Pair Corralation between Selective Insurance and Safety Insurance

Assuming the 90 days horizon Selective Insurance Group is expected to under-perform the Safety Insurance. In addition to that, Selective Insurance is 1.16 times more volatile than Safety Insurance Group. It trades about 0.0 of its total potential returns per unit of risk. Safety Insurance Group is currently generating about 0.04 per unit of volatility. If you would invest  6,867  in Safety Insurance Group on October 5, 2024 and sell it today you would earn a total of  933.00  from holding Safety Insurance Group or generate 13.59% return on investment over 90 days.

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

Selective Insurance Group  vs.  Safety Insurance Group

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.

Safety Insurance

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Safety Insurance Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly uncertain basic indicators, Safety Insurance may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Selective Insurance and Safety Insurance

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

The idea behind Selective Insurance Group and Safety Insurance Group 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..