Correlation Between Lemonade and Donegal Group

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

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

Diversification Opportunities for Lemonade and Donegal Group

0.75

Correlation Coefficient

Lemonade  Donegal Group

Poor diversification

The 3 months correlation between Lemonade and Donegal is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Lemonade and Donegal Group B in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Donegal Group B and Lemonade 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 Lemonade are associated (or correlated) with Donegal Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Donegal Group B has no effect on the direction of Lemonade i.e., Lemonade and Donegal Group go up and down completely randomly.

Pair Corralation between Lemonade and Donegal Group

Given the investment horizon of 90 days Lemonade is expected to generate 1.8 times more return on investment than Donegal Group. However, Lemonade is 1.8 times more volatile than Donegal Group B. It trades about 0.3 of its potential returns per unit of risk. Donegal Group B is currently generating about 0.09 per unit of risk. If you would invest  1,833  in Lemonade on September 2, 2024 and sell it today you would earn a total of  3,348  from holding Lemonade or generate 182.65% return on investment over 90 days.

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

Lemonade  vs.  Donegal Group B

Lemonade

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lemonade are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Lemonade exhibited solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Lemonade and Donegal Group

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

The idea behind Lemonade and Donegal Group B 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.