Correlation Between HCI and United Fire

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

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

Diversification Opportunities for HCI and United Fire

0.34

Correlation Coefficient

HCI  United Fire

Weak diversification

The 3 months correlation between HCI and United is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding HCI Group and United Fire Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Fire Group and HCI 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 HCI Group are associated (or correlated) with United Fire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Fire Group has no effect on the direction of HCI i.e., HCI and United Fire go up and down completely randomly.

Pair Corralation between HCI and United Fire

Considering the 90-day investment horizon HCI is expected to generate 1.52 times less return on investment than United Fire. But when comparing it to its historical volatility, HCI Group is 1.06 times less risky than United Fire. It trades about 0.13 of its potential returns per unit of risk. United Fire Group is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  2,026  in United Fire Group on September 2, 2024 and sell it today you would earn a total of  1,034  from holding United Fire Group or generate 51.04% return on investment over 90 days.

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

HCI Group  vs.  United Fire Group

HCI Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HCI Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady fundamental indicators, HCI demonstrated solid returns over the last few months and may actually be approaching a breakup point.

United Fire Group

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United Fire Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, United Fire unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HCI and United Fire

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

The idea behind HCI Group and United Fire 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.

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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.