Correlation Between Wesfarmers and Insurance Australia
Can any of the company-specific risk be diversified away by investing in both Wesfarmers 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 Wesfarmers and Insurance Australia into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wesfarmers and Insurance Australia Group, you can compare the effects of market volatilities on Wesfarmers 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 Wesfarmers with a short position of Insurance Australia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wesfarmers and Insurance Australia.
Diversification Opportunities for Wesfarmers and Insurance Australia
0.21 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Wesfarmers and Insurance is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Wesfarmers and Insurance Australia Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insurance Australia and Wesfarmers 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 Wesfarmers 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 Wesfarmers i.e., Wesfarmers and Insurance Australia go up and down completely randomly.
Pair Corralation between Wesfarmers and Insurance Australia
Assuming the 90 days trading horizon Wesfarmers is expected to generate 2.82 times less return on investment than Insurance Australia. But when comparing it to its historical volatility, Wesfarmers is 1.06 times less risky than Insurance Australia. It trades about 0.07 of its potential returns per unit of risk. Insurance Australia Group is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 617.00 in Insurance Australia Group on August 30, 2024 and sell it today you would earn a total of 230.00 from holding Insurance Australia Group or generate 37.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wesfarmers vs. Insurance Australia Group
Performance |
| Timeline |
| Wesfarmers |
| Insurance Australia |
Wesfarmers and Insurance Australia Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wesfarmers and Insurance Australia
The main advantage of trading using opposite Wesfarmers and Insurance Australia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wesfarmers 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.| Wesfarmers vs. Platinum Asia Investments | Wesfarmers vs. Fisher Paykel Healthcare | Wesfarmers vs. Capitol Health | Wesfarmers vs. MFF Capital Investments |
| Insurance Australia vs. PVW Resources | Insurance Australia vs. Woolworths | Insurance Australia vs. Wesfarmers | Insurance Australia vs. Coles 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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