Correlation Between Selective Insurance and Markel

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

Diversification Opportunities for Selective Insurance and Markel

-0.36

Correlation Coefficient

Selective Insurance  Markel

Very good diversification

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

Pair Corralation between Selective Insurance and Markel

Assuming the 90 days horizon Selective Insurance is expected to generate 2.94 times less return on investment than Markel. But when comparing it to its historical volatility, Selective Insurance Group is 1.64 times less risky than Markel. It trades about 0.09 of its potential returns per unit of risk. Markel is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  157,519  in Markel on September 2, 2024 and sell it today you would earn a total of  20,773  from holding Markel or generate 13.19% 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.  Markel

Selective Insurance

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Selective Insurance Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward indicators, Selective Insurance is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Markel

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Markel are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Markel disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Selective Insurance and Markel

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

The idea behind Selective Insurance Group and Markel 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.