Correlation Between First Citizens and Selective Insurance

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

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

Diversification Opportunities for First Citizens and Selective Insurance

0.88

Correlation Coefficient

First Citizens  Selective Insurance

Very poor diversification

The 3 months correlation between First and Selective is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding First Citizens BancShares and Selective Insurance Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Selective Insurance and First Citizens 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 First Citizens BancShares are associated (or correlated) with Selective Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Selective Insurance has no effect on the direction of First Citizens i.e., First Citizens and Selective Insurance go up and down completely randomly.

Pair Corralation between First Citizens and Selective Insurance

Assuming the 90 days horizon First Citizens BancShares is expected to generate 0.95 times more return on investment than Selective Insurance. However, First Citizens BancShares is 1.05 times less risky than Selective Insurance. It trades about 0.01 of its potential returns per unit of risk. Selective Insurance Group is currently generating about 0.01 per unit of risk. If you would invest  2,075  in First Citizens BancShares on February 23, 2024 and sell it today you would earn a total of  89.00  from holding First Citizens BancShares or generate 4.29% return on investment over 90 days.

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

First Citizens BancShares  vs.  Selective Insurance Group

First Citizens BancShares

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days First Citizens BancShares has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental indicators, First Citizens is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Selective Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Selective Insurance Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, Selective Insurance is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with First Citizens and Selective Insurance

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

The idea behind First Citizens BancShares and Selective Insurance Group 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.