Correlation Between White Mountains and United Fire

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

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

Diversification Opportunities for White Mountains and United Fire

0.81

Correlation Coefficient

White Mountains  United Fire

Very poor diversification

The 3 months correlation between White and United is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding White Mountains Insurance and United Fire Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Fire Group and White Mountains 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 White Mountains Insurance are associated (or correlated) with United Fire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Fire Group has no effect on the direction of White Mountains i.e., White Mountains and United Fire go up and down completely randomly.

Pair Corralation between White Mountains and United Fire

Considering the 90-day investment horizon White Mountains is expected to generate 4.35 times less return on investment than United Fire. But when comparing it to its historical volatility, White Mountains Insurance is 2.56 times less risky than United Fire. It trades about 0.11 of its potential returns per unit of risk. United Fire Group is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  2,026  in United Fire Group on September 3, 2024 and sell it today you would earn a total of  1,034  from holding United Fire Group or generate 51.04% return on investment over 90 days.

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

White Mountains Insurance  vs.  United Fire Group

White Mountains Insurance

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in White Mountains Insurance are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, White Mountains may actually be approaching a critical reversion point that can send shares even higher in January 2025.

United Fire Group

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United Fire Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, United Fire unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with White Mountains and United Fire

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

The idea behind White Mountains Insurance and United Fire 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.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.