Correlation Between Universal Insurance and Global Indemnity

Can any of the company-specific risk be diversified away by investing in both Universal Insurance and Global Indemnity 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 Global Indemnity 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 Global Indemnity PLC, you can compare the effects of market volatilities on Universal Insurance and Global Indemnity 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 Global Indemnity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal Insurance and Global Indemnity.

Diversification Opportunities for Universal Insurance and Global Indemnity

-0.03

Correlation Coefficient

Universal Insurance  Global Indemnity

Good diversification

The 3 months correlation between Universal and Global is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Universal Insurance Holdings and Global Indemnity PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Indemnity PLC 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 Global Indemnity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Indemnity PLC has no effect on the direction of Universal Insurance i.e., Universal Insurance and Global Indemnity go up and down completely randomly.

Pair Corralation between Universal Insurance and Global Indemnity

Considering the 90-day investment horizon Universal Insurance Holdings is expected to generate 0.94 times more return on investment than Global Indemnity. However, Universal Insurance Holdings is 1.06 times less risky than Global Indemnity. It trades about 0.12 of its potential returns per unit of risk. Global Indemnity PLC is currently generating about -0.03 per unit of risk. If you would invest  2,041  in Universal Insurance Holdings on December 29, 2024 and sell it today you would earn a total of  293.00  from holding Universal Insurance Holdings or generate 14.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.72%
Values	Daily Returns

Universal Insurance Holdings  vs.  Global Indemnity PLC

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.

Global Indemnity PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Global Indemnity PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong essential indicators, Global Indemnity is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Universal Insurance and Global Indemnity

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

The idea behind Universal Insurance Holdings and Global Indemnity PLC 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.