Correlation Between GENERAL and Universal Insurance

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

By analyzing existing cross correlation between GENERAL ELEC CAP and Universal Insurance Holdings, you can compare the effects of market volatilities on GENERAL and Universal 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 GENERAL with a short position of Universal Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of GENERAL and Universal Insurance.

Diversification Opportunities for GENERAL and Universal Insurance

0.15

Correlation Coefficient

GENERAL  Universal Insurance

Average diversification

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

Pair Corralation between GENERAL and Universal Insurance

Assuming the 90 days trading horizon GENERAL ELEC CAP is expected to generate 2.57 times more return on investment than Universal Insurance. However, GENERAL is 2.57 times more volatile than Universal Insurance Holdings. It trades about -0.02 of its potential returns per unit of risk. Universal Insurance Holdings is currently generating about -0.33 per unit of risk. If you would invest  9,151  in GENERAL ELEC CAP on October 12, 2024 and sell it today you would lose (91.00) from holding GENERAL ELEC CAP or give up 0.99% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	45.0%
Values	Daily Returns

GENERAL ELEC CAP  vs.  Universal Insurance Holdings

GENERAL ELEC CAP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GENERAL ELEC CAP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, GENERAL is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Universal Insurance

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Insurance Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Universal Insurance is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with GENERAL and Universal Insurance

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

The idea behind GENERAL ELEC CAP and Universal Insurance Holdings 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.