Correlation Between United Fire and Donegal Group

Can any of the company-specific risk be diversified away by investing in both United Fire 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 United Fire and Donegal Group 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 Donegal Group B, you can compare the effects of market volatilities on United Fire 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 United Fire with a short position of Donegal Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Fire and Donegal Group.

Diversification Opportunities for United Fire and Donegal Group

-0.25

Correlation Coefficient

United Fire  Donegal Group

Very good diversification

The 3 months correlation between United and Donegal is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding United Fire Group 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 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 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 United Fire i.e., United Fire and Donegal Group go up and down completely randomly.

Pair Corralation between United Fire and Donegal Group

Given the investment horizon of 90 days United Fire Group is expected to generate 0.42 times more return on investment than Donegal Group. However, United Fire Group is 2.39 times less risky than Donegal Group. It trades about -0.02 of its potential returns per unit of risk. Donegal Group B is currently generating about -0.02 per unit of risk. If you would invest  2,166  in United Fire Group on March 17, 2024 and sell it today you would lose (60.00) from holding United Fire Group or give up 2.77% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	80.95%
Values	Daily Returns

United Fire Group  vs.  Donegal Group B

United Fire Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Fire Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, United Fire is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Donegal Group B

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Donegal Group B has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Donegal Group is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with United Fire and Donegal Group

The main advantage of trading using opposite United Fire and Donegal Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Fire 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 United Fire Group 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.