Correlation Between Safety Insurance and PulteGroup
Can any of the company-specific risk be diversified away by investing in both Safety Insurance and PulteGroup 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 Safety Insurance and PulteGroup into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Safety Insurance Group and PulteGroup, you can compare the effects of market volatilities on Safety Insurance and PulteGroup 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 Safety Insurance with a short position of PulteGroup. Check out your portfolio center. Please also check ongoing floating volatility patterns of Safety Insurance and PulteGroup.
Diversification Opportunities for Safety Insurance and PulteGroup
-0.06 | Correlation Coefficient |
Good diversification
The 3 months correlation between Safety and PulteGroup is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Safety Insurance Group and PulteGroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PulteGroup and Safety Insurance 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 Safety Insurance Group are associated (or correlated) with PulteGroup. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PulteGroup has no effect on the direction of Safety Insurance i.e., Safety Insurance and PulteGroup go up and down completely randomly.
Pair Corralation between Safety Insurance and PulteGroup
Assuming the 90 days horizon Safety Insurance is expected to generate 3.18 times less return on investment than PulteGroup. But when comparing it to its historical volatility, Safety Insurance Group is 1.31 times less risky than PulteGroup. It trades about 0.04 of its potential returns per unit of risk. PulteGroup is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 6,618 in PulteGroup on September 2, 2024 and sell it today you would earn a total of 6,298 from holding PulteGroup or generate 95.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Safety Insurance Group vs. PulteGroup
Performance |
| Timeline |
| Safety Insurance |
| PulteGroup |
Safety Insurance and PulteGroup Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Safety Insurance and PulteGroup
The main advantage of trading using opposite Safety Insurance and PulteGroup positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Safety Insurance position performs unexpectedly, PulteGroup 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 PulteGroup will offset losses from the drop in PulteGroup's long position.The idea behind Safety Insurance Group and PulteGroup 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.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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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