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

0.74

Correlation Coefficient

Allstate  White Mountains

Poor diversification

The 3 months correlation between Allstate and White is 0.74. 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 The Allstate is expected to generate 1.3 times more return on investment than White Mountains. However, Allstate is 1.3 times more volatile than White Mountains Insurance. It trades about -0.03 of its potential returns per unit of risk. White Mountains Insurance is currently generating about -0.07 per unit of risk. If you would invest  20,607  in The Allstate on March 31, 2025 and sell it today you would lose (1,031) from holding The Allstate or give up 5.0% of portfolio value 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

Allstate

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Allstate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Allstate is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

White Mountains Insurance

Risk-Adjusted Performance

Very Weak

Over the last 90 days White Mountains Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

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.

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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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.