Correlation Between United Insurance and SDAX Index

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

Diversification Opportunities for United Insurance and SDAX Index

Pair Corralation between United Insurance and SDAX Index

United Insurance Holdings  vs.  SDAX Index

Pair Trading with United Insurance and SDAX Index

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