Correlation Between Universal Insurance and Shaheen Insurance

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

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

Diversification Opportunities for Universal Insurance and Shaheen Insurance

0.92

Correlation Coefficient

Universal Insurance  Shaheen Insurance

Almost no diversification

The 3 months correlation between Universal and Shaheen is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Universal Insurance and Shaheen Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shaheen 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 Shaheen Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shaheen Insurance has no effect on the direction of Universal Insurance i.e., Universal Insurance and Shaheen Insurance go up and down completely randomly.

Pair Corralation between Universal Insurance and Shaheen Insurance

Assuming the 90 days trading horizon Universal Insurance is expected to generate 1.91 times more return on investment than Shaheen Insurance. However, Universal Insurance is 1.91 times more volatile than Shaheen Insurance. It trades about 0.1 of its potential returns per unit of risk. Shaheen Insurance is currently generating about 0.13 per unit of risk. If you would invest  712.00  in Universal Insurance on September 29, 2024 and sell it today you would earn a total of  473.00  from holding Universal Insurance or generate 66.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.16%
Values	Daily Returns

Universal Insurance  vs.  Shaheen Insurance

Universal Insurance

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Insurance are ranked lower than 12 (%) 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.

Shaheen Insurance

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shaheen Insurance are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Shaheen Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Universal Insurance and Shaheen Insurance

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

The idea behind Universal Insurance and Shaheen 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.

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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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.