Correlation Between Prosafe SE and Insurance Australia

Can any of the company-specific risk be diversified away by investing in both Prosafe SE 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 Prosafe SE and Insurance Australia into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Prosafe SE and Insurance Australia

0.56

Correlation Coefficient

Prosafe SE  Insurance Australia

Very weak diversification

The 3 months correlation between Prosafe and Insurance is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Prosafe SE and Insurance Australia Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insurance Australia and Prosafe SE 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 Prosafe SE 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 Prosafe SE i.e., Prosafe SE and Insurance Australia go up and down completely randomly.

Pair Corralation between Prosafe SE and Insurance Australia

Assuming the 90 days horizon Prosafe SE is expected to generate 6.9 times more return on investment than Insurance Australia. However, Prosafe SE is 6.9 times more volatile than Insurance Australia Group. It trades about 0.07 of its potential returns per unit of risk. Insurance Australia Group is currently generating about -0.06 per unit of risk. If you would invest  54.00  in Prosafe SE on December 30, 2024 and sell it today you would earn a total of  5.00  from holding Prosafe SE or generate 9.26% return on investment over 90 days.

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

Prosafe SE  vs.  Insurance Australia Group

Prosafe SE

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Prosafe SE are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Prosafe SE reported solid returns over the last few months and may actually be approaching a breakup point.

Insurance Australia

Risk-Adjusted Performance

Very Weak

Over the last 90 days Insurance Australia Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Prosafe SE and Insurance Australia

The main advantage of trading using opposite Prosafe SE and Insurance Australia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prosafe SE 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 Prosafe SE 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.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.