Correlation Between Palomar Holdings and Employers Holdings

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

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

Diversification Opportunities for Palomar Holdings and Employers Holdings

0.84

Correlation Coefficient

Palomar Holdings  Employers Holdings

Very poor diversification

The 3 months correlation between Palomar and Employers is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Palomar Holdings and Employers Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Employers Holdings and Palomar Holdings 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 Palomar Holdings are associated (or correlated) with Employers Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Employers Holdings has no effect on the direction of Palomar Holdings i.e., Palomar Holdings and Employers Holdings go up and down completely randomly.

Pair Corralation between Palomar Holdings and Employers Holdings

Given the investment horizon of 90 days Palomar Holdings is expected to generate 1.43 times more return on investment than Employers Holdings. However, Palomar Holdings is 1.43 times more volatile than Employers Holdings. It trades about 0.11 of its potential returns per unit of risk. Employers Holdings is currently generating about 0.11 per unit of risk. If you would invest  9,578  in Palomar Holdings on September 15, 2024 and sell it today you would earn a total of  1,389  from holding Palomar Holdings or generate 14.5% return on investment over 90 days.

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

Palomar Holdings  vs.  Employers Holdings

Palomar Holdings

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Palomar Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak primary indicators, Palomar Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Employers Holdings

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Employers Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent forward indicators, Employers Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Palomar Holdings and Employers Holdings

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

The idea behind Palomar Holdings and Employers Holdings 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.