Correlation Between Selective Insurance and Nomad Foods

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

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

Diversification Opportunities for Selective Insurance and Nomad Foods

0.32

Correlation Coefficient

Selective Insurance  Nomad Foods

Weak diversification

The 3 months correlation between Selective and Nomad is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Selective Insurance Group and Nomad Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nomad Foods and Selective Insurance 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 Selective Insurance Group are associated (or correlated) with Nomad Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nomad Foods has no effect on the direction of Selective Insurance i.e., Selective Insurance and Nomad Foods go up and down completely randomly.

Pair Corralation between Selective Insurance and Nomad Foods

Given the investment horizon of 90 days Selective Insurance is expected to generate 1.18 times less return on investment than Nomad Foods. But when comparing it to its historical volatility, Selective Insurance Group is 1.3 times less risky than Nomad Foods. It trades about 0.03 of its potential returns per unit of risk. Nomad Foods is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,719  in Nomad Foods on January 24, 2024 and sell it today you would earn a total of  140.00  from holding Nomad Foods or generate 8.14% return on investment over 90 days.

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

Selective Insurance Group  vs.  Nomad Foods

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. Despite fairly strong technical and fundamental indicators, Selective Insurance is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Nomad Foods

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nomad Foods are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile primary indicators, Nomad Foods may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Selective Insurance and Nomad Foods

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

The idea behind Selective Insurance Group and Nomad Foods 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.