Correlation Between American Homes and Selective Insurance
Can any of the company-specific risk be diversified away by investing in both American Homes and Selective 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 American Homes and Selective Insurance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Homes 4 and Selective Insurance Group, you can compare the effects of market volatilities on American Homes and Selective 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 American Homes with a short position of Selective Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Homes and Selective Insurance.
Diversification Opportunities for American Homes and Selective Insurance
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between American and Selective is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Selective Insurance Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Selective Insurance and American Homes 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 American Homes 4 are associated (or correlated) with Selective Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Selective Insurance has no effect on the direction of American Homes i.e., American Homes and Selective Insurance go up and down completely randomly.
Pair Corralation between American Homes and Selective Insurance
Assuming the 90 days trading horizon American Homes 4 is expected to generate 1.4 times more return on investment than Selective Insurance. However, American Homes is 1.4 times more volatile than Selective Insurance Group. It trades about -0.01 of its potential returns per unit of risk. Selective Insurance Group is currently generating about -0.09 per unit of risk. If you would invest 3,515 in American Homes 4 on September 24, 2024 and sell it today you would lose (15.00) from holding American Homes 4 or give up 0.43% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Homes 4 vs. Selective Insurance Group
Performance |
| Timeline |
| American Homes 4 |
| Selective Insurance |
American Homes and Selective Insurance Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Homes and Selective Insurance
The main advantage of trading using opposite American Homes and Selective Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Homes position performs unexpectedly, Selective 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 Selective Insurance will offset losses from the drop in Selective Insurance's long position.| American Homes vs. Fevertree Drinks PLC | American Homes vs. MAGNUM MINING EXP | American Homes vs. United Breweries Co | American Homes vs. THAI BEVERAGE |
| Selective Insurance vs. American Homes 4 | Selective Insurance vs. Consolidated Communications Holdings | Selective Insurance vs. Tri Pointe Homes | Selective Insurance vs. Haier Smart Home |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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