Correlation Between Donegal Group and Heritage Insurance

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

By analyzing existing cross correlation between Donegal Group B and Heritage Insurance Hldgs, you can compare the effects of market volatilities on Donegal Group and Heritage 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 Heritage Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Donegal Group and Heritage Insurance.

Diversification Opportunities for Donegal Group and Heritage Insurance

-0.37

Correlation Coefficient

Donegal Group  Heritage Insurance

Very good diversification

The 3 months correlation between Donegal and Heritage is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Donegal Group B and Heritage Insurance Hldgs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heritage Insurance Hldgs 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 B are associated (or correlated) with Heritage Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heritage Insurance Hldgs has no effect on the direction of Donegal Group i.e., Donegal Group and Heritage Insurance go up and down completely randomly.

Pair Corralation between Donegal Group and Heritage Insurance

Assuming the 90 days horizon Donegal Group B is expected to generate 0.61 times more return on investment than Heritage Insurance. However, Donegal Group B is 1.64 times less risky than Heritage Insurance. It trades about 0.09 of its potential returns per unit of risk. Heritage Insurance Hldgs is currently generating about -0.05 per unit of risk. If you would invest  1,271  in Donegal Group B on September 3, 2024 and sell it today you would earn a total of  180.00  from holding Donegal Group B or generate 14.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	84.38%
Values	Daily Returns

Donegal Group B  vs.  Heritage Insurance Hldgs

Donegal Group B

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Donegal Group B are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating fundamental indicators, Donegal Group sustained solid returns over the last few months and may actually be approaching a breakup point.

Heritage Insurance Hldgs

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Heritage Insurance Hldgs has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Donegal Group and Heritage Insurance

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

The idea behind Donegal Group B and Heritage Insurance Hldgs 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.