Correlation Between Allstate and White Mountains
Can any of the company-specific risk be diversified away by investing in both Allstate and White Mountains 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 Allstate and White Mountains into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Allstate and White Mountains Insurance, you can compare the effects of market volatilities on Allstate and White Mountains 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 Allstate with a short position of White Mountains. Check out your portfolio center. Please also check ongoing floating volatility patterns of Allstate and White Mountains.
Diversification Opportunities for Allstate and White Mountains
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Allstate and White is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding The Allstate and White Mountains Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on White Mountains Insurance and Allstate 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 Allstate are associated (or correlated) with White Mountains. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of White Mountains Insurance has no effect on the direction of Allstate i.e., Allstate and White Mountains go up and down completely randomly.
Pair Corralation between Allstate and White Mountains
Considering the 90-day investment horizon Allstate is expected to generate 1.23 times less return on investment than White Mountains. But when comparing it to its historical volatility, The Allstate is 1.13 times less risky than White Mountains. It trades about 0.25 of its potential returns per unit of risk. White Mountains Insurance is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 181,487 in White Mountains Insurance on August 27, 2024 and sell it today you would earn a total of 17,347 from holding White Mountains Insurance or generate 9.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Allstate vs. White Mountains Insurance
Performance |
| Timeline |
| Allstate |
| White Mountains Insurance |
Allstate and White Mountains Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Allstate and White Mountains
The main advantage of trading using opposite Allstate and White Mountains positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Allstate position performs unexpectedly, White Mountains 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 White Mountains will offset losses from the drop in White Mountains' long position.The idea behind The Allstate and White Mountains 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.| White Mountains vs. NI Holdings | White Mountains vs. Donegal Group A | White Mountains vs. Donegal Group B | White Mountains vs. The Hanover Insurance |
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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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