Correlation Between Insurance Australia and Challenger
Can any of the company-specific risk be diversified away by investing in both Insurance Australia and Challenger 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 Insurance Australia and Challenger into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Insurance Australia Group and Challenger, you can compare the effects of market volatilities on Insurance Australia and Challenger 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 Insurance Australia with a short position of Challenger. Check out your portfolio center. Please also check ongoing floating volatility patterns of Insurance Australia and Challenger.
Diversification Opportunities for Insurance Australia and Challenger
-0.36 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Insurance and Challenger is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Insurance Australia Group and Challenger in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Challenger and Insurance Australia 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 Insurance Australia Group are associated (or correlated) with Challenger. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Challenger has no effect on the direction of Insurance Australia i.e., Insurance Australia and Challenger go up and down completely randomly.
Pair Corralation between Insurance Australia and Challenger
Assuming the 90 days trading horizon Insurance Australia Group is expected to generate 0.54 times more return on investment than Challenger. However, Insurance Australia Group is 1.84 times less risky than Challenger. It trades about 0.17 of its potential returns per unit of risk. Challenger is currently generating about -0.09 per unit of risk. If you would invest 732.00 in Insurance Australia Group on August 28, 2024 and sell it today you would earn a total of 87.00 from holding Insurance Australia Group or generate 11.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Insurance Australia Group vs. Challenger
Performance |
| Timeline |
| Insurance Australia |
| Challenger |
Insurance Australia and Challenger Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Insurance Australia and Challenger
The main advantage of trading using opposite Insurance Australia and Challenger positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Insurance Australia position performs unexpectedly, Challenger 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 Challenger will offset losses from the drop in Challenger's long position.| Insurance Australia vs. Aneka Tambang Tbk | Insurance Australia vs. Woolworths | Insurance Australia vs. Commonwealth Bank | Insurance Australia vs. BHP Group Limited |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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