Correlation Between International Consolidated and Insurance Australia
Can any of the company-specific risk be diversified away by investing in both International Consolidated and Insurance Australia 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 International Consolidated and Insurance Australia into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Consolidated Airlines and Insurance Australia Group, you can compare the effects of market volatilities on International Consolidated and Insurance Australia 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 International Consolidated with a short position of Insurance Australia. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Consolidated and Insurance Australia.
Diversification Opportunities for International Consolidated and Insurance Australia
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between International and Insurance is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding International Consolidated Air and Insurance Australia Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insurance Australia and International Consolidated 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 International Consolidated Airlines are associated (or correlated) with Insurance Australia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Insurance Australia has no effect on the direction of International Consolidated i.e., International Consolidated and Insurance Australia go up and down completely randomly.
Pair Corralation between International Consolidated and Insurance Australia
Assuming the 90 days horizon International Consolidated Airlines is expected to generate 1.45 times more return on investment than Insurance Australia. However, International Consolidated is 1.45 times more volatile than Insurance Australia Group. It trades about 0.34 of its potential returns per unit of risk. Insurance Australia Group is currently generating about 0.25 per unit of risk. If you would invest 356.00 in International Consolidated Airlines on November 5, 2024 and sell it today you would earn a total of 51.00 from holding International Consolidated Airlines or generate 14.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Consolidated Air vs. Insurance Australia Group
Performance |
| Timeline |
| International Consolidated |
| Insurance Australia |
International Consolidated and Insurance Australia Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Consolidated and Insurance Australia
The main advantage of trading using opposite International Consolidated and Insurance Australia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Consolidated position performs unexpectedly, Insurance Australia 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 Insurance Australia will offset losses from the drop in Insurance Australia's long position.The idea behind International Consolidated Airlines and Insurance Australia 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.
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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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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