Correlation Between United Insurance and Crescent Steel

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

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

Diversification Opportunities for United Insurance and Crescent Steel

0.87

Correlation Coefficient

United Insurance  Crescent Steel

Very poor diversification

The 3 months correlation between United and Crescent is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding United Insurance and Crescent Steel Allied in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Crescent Steel Allied and United 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 United Insurance are associated (or correlated) with Crescent Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Crescent Steel Allied has no effect on the direction of United Insurance i.e., United Insurance and Crescent Steel go up and down completely randomly.

Pair Corralation between United Insurance and Crescent Steel

Assuming the 90 days trading horizon United Insurance is expected to generate 3.49 times less return on investment than Crescent Steel. But when comparing it to its historical volatility, United Insurance is 2.84 times less risky than Crescent Steel. It trades about 0.1 of its potential returns per unit of risk. Crescent Steel Allied is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  7,543  in Crescent Steel Allied on September 4, 2024 and sell it today you would earn a total of  2,706  from holding Crescent Steel Allied or generate 35.87% return on investment over 90 days.

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

United Insurance  vs.  Crescent Steel Allied

United Insurance

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in United Insurance are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, United Insurance may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Crescent Steel Allied

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Crescent Steel Allied are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Crescent Steel sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Insurance and Crescent Steel

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

The idea behind United Insurance and Crescent Steel Allied 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..