Correlation Between Selective Insurance and American Financial
Can any of the company-specific risk be diversified away by investing in both Selective Insurance and American Financial 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 Selective Insurance and American Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Selective Insurance Group and American Financial Group, you can compare the effects of market volatilities on Selective Insurance and American Financial 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 Selective Insurance with a short position of American Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Selective Insurance and American Financial.
Diversification Opportunities for Selective Insurance and American Financial
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Selective and American is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Selective Insurance Group and American Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Financial and Selective 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 Selective Insurance Group are associated (or correlated) with American Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Financial has no effect on the direction of Selective Insurance i.e., Selective Insurance and American Financial go up and down completely randomly.
Pair Corralation between Selective Insurance and American Financial
Given the investment horizon of 90 days Selective Insurance is expected to generate 1.6 times less return on investment than American Financial. In addition to that, Selective Insurance is 1.25 times more volatile than American Financial Group. It trades about 0.02 of its total potential returns per unit of risk. American Financial Group is currently generating about 0.04 per unit of volatility. If you would invest 11,958 in American Financial Group on August 26, 2024 and sell it today you would earn a total of 2,689 from holding American Financial Group or generate 22.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Selective Insurance Group vs. American Financial Group
Performance |
| Timeline |
| Selective Insurance |
| American Financial |
Selective Insurance and American Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Selective Insurance and American Financial
The main advantage of trading using opposite Selective Insurance and American Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Selective Insurance position performs unexpectedly, American Financial 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 American Financial will offset losses from the drop in American Financial's long position.| Selective Insurance vs. Kemper | Selective Insurance vs. Donegal Group B | Selective Insurance vs. Argo Group International | Selective Insurance vs. Global Indemnity PLC |
| American Financial vs. Selective Insurance Group | American Financial vs. Horace Mann Educators | American Financial vs. Kemper | American Financial vs. ProAssurance |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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