Correlation Between Allstate and Holiday Island

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

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

Diversification Opportunities for Allstate and Holiday Island

-0.22

Correlation Coefficient

Allstate  Holiday Island

Very good diversification

The 3 months correlation between Allstate and Holiday is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding The Allstate and Holiday Island Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Holiday Island Holdings and Allstate 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 The Allstate are associated (or correlated) with Holiday Island. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Holiday Island Holdings has no effect on the direction of Allstate i.e., Allstate and Holiday Island go up and down completely randomly.

Pair Corralation between Allstate and Holiday Island

Considering the 90-day investment horizon Allstate is expected to generate 32.33 times less return on investment than Holiday Island. But when comparing it to its historical volatility, The Allstate is 21.32 times less risky than Holiday Island. It trades about 0.04 of its potential returns per unit of risk. Holiday Island Holdings is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3.02  in Holiday Island Holdings on February 15, 2024 and sell it today you would earn a total of  1.98  from holding Holiday Island Holdings or generate 65.56% return on investment over 90 days.

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

The Allstate  vs.  Holiday Island Holdings

Allstate

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Allstate are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, Allstate is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Holiday Island Holdings

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Holiday Island Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly conflicting technical indicators, Holiday Island demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Allstate and Holiday Island

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

The idea behind The Allstate and Holiday Island 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.

Check out your portfolio center.

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.