Correlation Between Universal Insurance and Donegal Group

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

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

Diversification Opportunities for Universal Insurance and Donegal Group

0.84

Correlation Coefficient

Universal Insurance  Donegal Group

Very poor diversification

The 3 months correlation between Universal and Donegal is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Universal Insurance Holdings and Donegal Group A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Donegal Group A and Universal 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 Universal Insurance Holdings are associated (or correlated) with Donegal Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Donegal Group A has no effect on the direction of Universal Insurance i.e., Universal Insurance and Donegal Group go up and down completely randomly.

Pair Corralation between Universal Insurance and Donegal Group

Considering the 90-day investment horizon Universal Insurance is expected to generate 1.73 times less return on investment than Donegal Group. In addition to that, Universal Insurance is 1.36 times more volatile than Donegal Group A. It trades about 0.12 of its total potential returns per unit of risk. Donegal Group A is currently generating about 0.28 per unit of volatility. If you would invest  1,519  in Donegal Group A on December 30, 2024 and sell it today you would earn a total of  422.00  from holding Donegal Group A or generate 27.78% return on investment over 90 days.

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

Universal Insurance Holdings  vs.  Donegal Group A

Universal Insurance

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Insurance Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent basic indicators, Universal Insurance exhibited solid returns over the last few months and may actually be approaching a breakup point.

Donegal Group A

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Donegal Group A are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting fundamental indicators, Donegal Group sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Universal Insurance and Donegal Group

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

The idea behind Universal Insurance Holdings and Donegal Group A 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.