Correlation Between Insurance Australia and Energy Resources
Can any of the company-specific risk be diversified away by investing in both Insurance Australia and Energy Resources 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 Energy Resources 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 Energy Resources, you can compare the effects of market volatilities on Insurance Australia and Energy Resources 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 Energy Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Insurance Australia and Energy Resources.
Diversification Opportunities for Insurance Australia and Energy Resources
-0.44 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Insurance and Energy is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Insurance Australia Group and Energy Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Resources 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 Energy Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Resources has no effect on the direction of Insurance Australia i.e., Insurance Australia and Energy Resources go up and down completely randomly.
Pair Corralation between Insurance Australia and Energy Resources
Assuming the 90 days trading horizon Insurance Australia is expected to generate 14.48 times less return on investment than Energy Resources. But when comparing it to its historical volatility, Insurance Australia Group is 22.37 times less risky than Energy Resources. It trades about 0.29 of its potential returns per unit of risk. Energy Resources is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 0.20 in Energy Resources on August 25, 2024 and sell it today you would earn a total of 0.10 from holding Energy Resources or generate 50.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Insurance Australia Group vs. Energy Resources
Performance |
| Timeline |
| Insurance Australia |
| Energy Resources |
Insurance Australia and Energy Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Insurance Australia and Energy Resources
The main advantage of trading using opposite Insurance Australia and Energy Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Insurance Australia position performs unexpectedly, Energy Resources 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 Energy Resources will offset losses from the drop in Energy Resources' long position.| Insurance Australia vs. Dexus Convenience Retail | Insurance Australia vs. Retail Food Group | Insurance Australia vs. Australian United Investment | Insurance Australia vs. Pinnacle Investment Management |
| Energy Resources vs. Westpac Banking | Energy Resources vs. ABACUS STORAGE KING | Energy Resources vs. Odyssey Energy | Energy Resources vs. Insurance Australia Group |
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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