Correlation Between Root and Admiral Group

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

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

Diversification Opportunities for Root and Admiral Group

0.9

Correlation Coefficient

Root  Admiral Group

Almost no diversification

The 3 months correlation between Root and Admiral is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Root Inc and Admiral Group plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Admiral Group plc and Root 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 Root Inc are associated (or correlated) with Admiral Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Admiral Group plc has no effect on the direction of Root i.e., Root and Admiral Group go up and down completely randomly.

Pair Corralation between Root and Admiral Group

Given the investment horizon of 90 days Root Inc is expected to under-perform the Admiral Group. In addition to that, Root is 39.42 times more volatile than Admiral Group plc. It trades about -0.09 of its total potential returns per unit of risk. Admiral Group plc is currently generating about -0.21 per unit of volatility. If you would invest  3,408  in Admiral Group plc on February 4, 2024 and sell it today you would lose (31.00) from holding Admiral Group plc or give up 0.91% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.65%
Values	Daily Returns

Root Inc  vs.  Admiral Group plc

Root Inc

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Root Inc are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Root unveiled solid returns over the last few months and may actually be approaching a breakup point.

Admiral Group plc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Admiral Group plc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Admiral Group may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Root and Admiral Group

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

The idea behind Root Inc and Admiral Group plc 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.