Correlation Between Sterling Construction and Selective Insurance

Can any of the company-specific risk be diversified away by investing in both Sterling Construction and Selective 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 Sterling Construction and Selective Insurance into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sterling Construction and Selective Insurance Group, you can compare the effects of market volatilities on Sterling Construction and Selective 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 Sterling Construction with a short position of Selective Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sterling Construction and Selective Insurance.

Diversification Opportunities for Sterling Construction and Selective Insurance

0.78

Correlation Coefficient

Sterling Construction  Selective Insurance

Poor diversification

The 3 months correlation between Sterling and Selective is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Sterling Construction and Selective Insurance Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Selective Insurance and Sterling Construction 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 Sterling Construction are associated (or correlated) with Selective Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Selective Insurance has no effect on the direction of Sterling Construction i.e., Sterling Construction and Selective Insurance go up and down completely randomly.

Pair Corralation between Sterling Construction and Selective Insurance

Assuming the 90 days horizon Sterling Construction is expected to under-perform the Selective Insurance. In addition to that, Sterling Construction is 2.36 times more volatile than Selective Insurance Group. It trades about -0.25 of its total potential returns per unit of risk. Selective Insurance Group is currently generating about -0.33 per unit of volatility. If you would invest  9,250  in Selective Insurance Group on October 4, 2024 and sell it today you would lose (600.00) from holding Selective Insurance Group or give up 6.49% of portfolio value over 90 days.

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

Sterling Construction  vs.  Selective Insurance Group

Sterling Construction

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sterling Construction are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Sterling Construction reported solid returns over the last few months and may actually be approaching a breakup point.

Selective Insurance

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Selective Insurance Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with Sterling Construction and Selective Insurance

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

The idea behind Sterling Construction and Selective 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.