Correlation Between USS and Safety Insurance

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

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

Diversification Opportunities for USS and Safety Insurance

0.61

Correlation Coefficient

USS  Safety Insurance

Poor diversification

The 3 months correlation between USS and Safety is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding USS Co and Safety Insurance Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Safety Insurance and USS 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 USS Co 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 USS i.e., USS and Safety Insurance go up and down completely randomly.

Pair Corralation between USS and Safety Insurance

Assuming the 90 days horizon USS Co is expected to generate 0.53 times more return on investment than Safety Insurance. However, USS Co is 1.88 times less risky than Safety Insurance. It trades about -0.08 of its potential returns per unit of risk. Safety Insurance Group is currently generating about -0.11 per unit of risk. If you would invest  850.00  in USS Co on October 5, 2024 and sell it today you would lose (10.00) from holding USS Co or give up 1.18% of portfolio value over 90 days.

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

USS Co  vs.  Safety Insurance Group

USS Co

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days USS Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, USS 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 USS and Safety Insurance

The main advantage of trading using opposite USS and Safety Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if USS 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 USS Co 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.