Correlation Between Universal Insurance and Kingsway Financial

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

Diversification Opportunities for Universal Insurance and Kingsway Financial

0.14

Correlation Coefficient

Universal Insurance  Kingsway Financial

Average diversification

The 3 months correlation between Universal and Kingsway is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Universal Insurance Holdings and Kingsway Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kingsway Financial 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 Kingsway Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kingsway Financial has no effect on the direction of Universal Insurance i.e., Universal Insurance and Kingsway Financial go up and down completely randomly.

Pair Corralation between Universal Insurance and Kingsway Financial

Considering the 90-day investment horizon Universal Insurance Holdings is expected to generate 0.99 times more return on investment than Kingsway Financial. However, Universal Insurance Holdings is 1.01 times less risky than Kingsway Financial. It trades about 0.05 of its potential returns per unit of risk. Kingsway Financial Services is currently generating about -0.05 per unit of risk. If you would invest  1,888  in Universal Insurance Holdings on October 11, 2024 and sell it today you would earn a total of  79.00  from holding Universal Insurance Holdings or generate 4.18% return on investment over 90 days.

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

Universal Insurance Holdings  vs.  Kingsway Financial Services

Universal Insurance

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Insurance Holdings are ranked lower than 3 (%) 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.

Kingsway Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kingsway Financial Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Kingsway Financial is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Universal Insurance and Kingsway Financial

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

The idea behind Universal Insurance Holdings and Kingsway Financial Services 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.