Correlation Between Allstate and Progressive Corp

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

By analyzing existing cross correlation between The Allstate and Progressive Corp, you can compare the effects of market volatilities on Allstate and Progressive Corp 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 Progressive Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Allstate and Progressive Corp.

Diversification Opportunities for Allstate and Progressive Corp

0.86

Correlation Coefficient

Allstate  Progressive Corp

Very poor diversification

The 3 months correlation between Allstate and Progressive is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding The Allstate and Progressive Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Progressive Corp 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 Progressive Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Progressive Corp has no effect on the direction of Allstate i.e., Allstate and Progressive Corp go up and down completely randomly.

Pair Corralation between Allstate and Progressive Corp

Considering the 90-day investment horizon The Allstate is expected to under-perform the Progressive Corp. In addition to that, Allstate is 1.23 times more volatile than Progressive Corp. It trades about -0.07 of its total potential returns per unit of risk. Progressive Corp is currently generating about -0.03 per unit of volatility. If you would invest  21,077  in Progressive Corp on February 3, 2024 and sell it today you would lose (174.00) from holding Progressive Corp or give up 0.83% of portfolio value over 90 days.

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

The Allstate  vs.  Progressive Corp

Allstate

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Allstate are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, Allstate may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Progressive Corp

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Progressive Corp are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal technical and fundamental indicators, Progressive Corp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Allstate and Progressive Corp

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

The idea behind The Allstate and Progressive Corp 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.