Correlation Between Donegal Group and Selective Insurance

Can any of the company-specific risk be diversified away by investing in both Donegal Group 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 Donegal Group and Selective Insurance into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Donegal Group A and Selective Insurance Group, you can compare the effects of market volatilities on Donegal Group 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 Donegal Group with a short position of Selective Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Donegal Group and Selective Insurance.

Diversification Opportunities for Donegal Group and Selective Insurance

-0.45

Correlation Coefficient

Donegal Group  Selective Insurance

Very good diversification

The 3 months correlation between Donegal and Selective is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Donegal Group A and Selective Insurance Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Selective Insurance and Donegal Group 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 Donegal Group A 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 Donegal Group i.e., Donegal Group and Selective Insurance go up and down completely randomly.

Pair Corralation between Donegal Group and Selective Insurance

Assuming the 90 days horizon Donegal Group A is expected to generate 1.02 times more return on investment than Selective Insurance. However, Donegal Group is 1.02 times more volatile than Selective Insurance Group. It trades about -0.05 of its potential returns per unit of risk. Selective Insurance Group is currently generating about -0.13 per unit of risk. If you would invest  1,374  in Donegal Group A on February 7, 2024 and sell it today you would lose (19.00) from holding Donegal Group A or give up 1.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Donegal Group A  vs.  Selective Insurance Group

Donegal Group A

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Donegal Group A has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Donegal Group is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Selective Insurance

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Selective Insurance Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward indicators, Selective Insurance is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Donegal Group and Selective Insurance

The main advantage of trading using opposite Donegal Group and Selective Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Donegal Group 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.

The idea behind Donegal Group A and Selective Insurance Group 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.