Correlation Between Williams Companies and Safety Insurance

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

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

Diversification Opportunities for Williams Companies and Safety Insurance

0.53

Correlation Coefficient

Williams Companies  Safety Insurance

Very weak diversification

The 3 months correlation between Williams and Safety is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding The Williams Companies and Safety Insurance Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Safety Insurance and Williams Companies 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 The Williams Companies are associated (or correlated) with Safety Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Safety Insurance has no effect on the direction of Williams Companies i.e., Williams Companies and Safety Insurance go up and down completely randomly.

Pair Corralation between Williams Companies and Safety Insurance

Assuming the 90 days horizon The Williams Companies is expected to generate 1.05 times more return on investment than Safety Insurance. However, Williams Companies is 1.05 times more volatile than Safety Insurance Group. It trades about 0.17 of its potential returns per unit of risk. Safety Insurance Group is currently generating about 0.03 per unit of risk. If you would invest  4,808  in The Williams Companies on October 26, 2024 and sell it today you would earn a total of  850.00  from holding The Williams Companies or generate 17.68% return on investment over 90 days.

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

The Williams Companies  vs.  Safety Insurance Group

The Williams Companies

Risk-Adjusted Performance

13 of 100

Good

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

Safety Insurance

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Safety Insurance Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Safety Insurance is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Williams Companies and Safety Insurance

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

The idea behind The Williams Companies and Safety Insurance Group 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.