Correlation Between United Fire and Citizens

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

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

Diversification Opportunities for United Fire and Citizens

0.25

Correlation Coefficient

United Fire  Citizens

Modest diversification

The 3 months correlation between United and Citizens is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding United Fire Group and Citizens in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citizens and United Fire 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 United Fire Group are associated (or correlated) with Citizens. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citizens has no effect on the direction of United Fire i.e., United Fire and Citizens go up and down completely randomly.

Pair Corralation between United Fire and Citizens

Given the investment horizon of 90 days United Fire Group is expected to generate 0.74 times more return on investment than Citizens. However, United Fire Group is 1.35 times less risky than Citizens. It trades about 0.19 of its potential returns per unit of risk. Citizens is currently generating about 0.14 per unit of risk. If you would invest  2,017  in United Fire Group on September 5, 2024 and sell it today you would earn a total of  1,049  from holding United Fire Group or generate 52.01% return on investment over 90 days.

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

United Fire Group  vs.  Citizens

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.

Citizens

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citizens are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak forward indicators, Citizens sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Fire and Citizens

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

The idea behind United Fire Group and Citizens 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 Global Correlations module to find global opportunities by holding instruments from different markets.