Correlation Between Stewart Information and Palomar Holdings

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

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

Diversification Opportunities for Stewart Information and Palomar Holdings

0.71

Correlation Coefficient

Stewart Information  Palomar Holdings

Poor diversification

The 3 months correlation between Stewart and Palomar is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Stewart Information Services and Palomar Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Palomar Holdings and Stewart Information 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 Stewart Information Services are associated (or correlated) with Palomar Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Palomar Holdings has no effect on the direction of Stewart Information i.e., Stewart Information and Palomar Holdings go up and down completely randomly.

Pair Corralation between Stewart Information and Palomar Holdings

Considering the 90-day investment horizon Stewart Information Services is expected to under-perform the Palomar Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Stewart Information Services is 1.3 times less risky than Palomar Holdings. The stock trades about -0.03 of its potential returns per unit of risk. The Palomar Holdings is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  9,482  in Palomar Holdings on September 27, 2024 and sell it today you would earn a total of  1,018  from holding Palomar Holdings or generate 10.74% return on investment over 90 days.

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

Stewart Information Services  vs.  Palomar Holdings

Stewart Information

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stewart Information Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Stewart Information is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Palomar Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Palomar Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating primary indicators, Palomar Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Stewart Information and Palomar Holdings

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

The idea behind Stewart Information Services and Palomar 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.

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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.