Correlation Between Universal Insurance and Crescent Star

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

By analyzing existing cross correlation between Universal Insurance and Crescent Star Insurance, you can compare the effects of market volatilities on Universal Insurance and Crescent Star 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 Crescent Star. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal Insurance and Crescent Star.

Diversification Opportunities for Universal Insurance and Crescent Star

0.68

Correlation Coefficient

Universal Insurance  Crescent Star

Poor diversification

The 3 months correlation between Universal and Crescent is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Universal Insurance and Crescent Star Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Crescent Star Insurance 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 are associated (or correlated) with Crescent Star. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Crescent Star Insurance has no effect on the direction of Universal Insurance i.e., Universal Insurance and Crescent Star go up and down completely randomly.

Pair Corralation between Universal Insurance and Crescent Star

Assuming the 90 days trading horizon Universal Insurance is expected to generate 1.38 times more return on investment than Crescent Star. However, Universal Insurance is 1.38 times more volatile than Crescent Star Insurance. It trades about 0.17 of its potential returns per unit of risk. Crescent Star Insurance is currently generating about 0.05 per unit of risk. If you would invest  651.00  in Universal Insurance on October 11, 2024 and sell it today you would earn a total of  361.00  from holding Universal Insurance or generate 55.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.83%
Values	Daily Returns

Universal Insurance  vs.  Crescent Star Insurance

Universal Insurance

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Insurance are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Universal Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Crescent Star Insurance

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Crescent Star Insurance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Crescent Star may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Universal Insurance and Crescent Star

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

The idea behind Universal Insurance and Crescent Star Insurance 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.