Correlation Between Walker Dunlop and Heritage Insurance

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

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

Diversification Opportunities for Walker Dunlop and Heritage Insurance

-0.33

Correlation Coefficient

Walker Dunlop  Heritage Insurance

Very good diversification

The 3 months correlation between Walker and Heritage is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Walker Dunlop and Heritage Insurance Hldgs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heritage Insurance Hldgs and Walker Dunlop 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 Walker Dunlop are associated (or correlated) with Heritage Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heritage Insurance Hldgs has no effect on the direction of Walker Dunlop i.e., Walker Dunlop and Heritage Insurance go up and down completely randomly.

Pair Corralation between Walker Dunlop and Heritage Insurance

Allowing for the 90-day total investment horizon Walker Dunlop is expected to under-perform the Heritage Insurance. But the stock apears to be less risky and, when comparing its historical volatility, Walker Dunlop is 1.59 times less risky than Heritage Insurance. The stock trades about -0.08 of its potential returns per unit of risk. The Heritage Insurance Hldgs is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,190  in Heritage Insurance Hldgs on December 29, 2024 and sell it today you would earn a total of  285.00  from holding Heritage Insurance Hldgs or generate 23.95% return on investment over 90 days.

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

Walker Dunlop  vs.  Heritage Insurance Hldgs

Walker Dunlop

Risk-Adjusted Performance

Very Weak

Over the last 90 days Walker Dunlop has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Heritage Insurance Hldgs

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Heritage Insurance Hldgs are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Heritage Insurance reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Walker Dunlop and Heritage Insurance

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

The idea behind Walker Dunlop and Heritage Insurance Hldgs 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.