Correlation Between Selective Insurance and ProAssurance

Can any of the company-specific risk be diversified away by investing in both Selective Insurance and ProAssurance 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 ProAssurance 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 ProAssurance, you can compare the effects of market volatilities on Selective Insurance and ProAssurance 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 ProAssurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Selective Insurance and ProAssurance.

Diversification Opportunities for Selective Insurance and ProAssurance

-0.36

Correlation Coefficient

Selective Insurance  ProAssurance

Very good diversification

The 3 months correlation between Selective and ProAssurance is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Selective Insurance Group and ProAssurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProAssurance 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 ProAssurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProAssurance has no effect on the direction of Selective Insurance i.e., Selective Insurance and ProAssurance go up and down completely randomly.

Pair Corralation between Selective Insurance and ProAssurance

Given the investment horizon of 90 days Selective Insurance Group is expected to under-perform the ProAssurance. But the stock apears to be less risky and, when comparing its historical volatility, Selective Insurance Group is 1.29 times less risky than ProAssurance. The stock trades about -0.22 of its potential returns per unit of risk. The ProAssurance is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,299  in ProAssurance on February 7, 2024 and sell it today you would earn a total of  84.00  from holding ProAssurance or generate 6.47% return on investment over 90 days.

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

Selective Insurance Group  vs.  ProAssurance

Selective Insurance

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Selective Insurance Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, Selective Insurance is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

ProAssurance

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ProAssurance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ProAssurance may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Selective Insurance and ProAssurance

The main advantage of trading using opposite Selective Insurance and ProAssurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Selective Insurance position performs unexpectedly, ProAssurance 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 ProAssurance will offset losses from the drop in ProAssurance's long position.

The idea behind Selective Insurance Group and ProAssurance 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.