Correlation Between Advanced Drainage and Insurance Australia

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

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

Diversification Opportunities for Advanced Drainage and Insurance Australia

-0.82

Correlation Coefficient

Advanced Drainage  Insurance Australia

Pay attention - limited upside

The 3 months correlation between Advanced and Insurance is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Drainage Systems and Insurance Australia Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insurance Australia and Advanced Drainage 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 Advanced Drainage Systems 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 Advanced Drainage i.e., Advanced Drainage and Insurance Australia go up and down completely randomly.

Pair Corralation between Advanced Drainage and Insurance Australia

Assuming the 90 days horizon Advanced Drainage Systems is expected to under-perform the Insurance Australia. In addition to that, Advanced Drainage is 1.17 times more volatile than Insurance Australia Group. It trades about -0.05 of its total potential returns per unit of risk. Insurance Australia Group is currently generating about 0.1 per unit of volatility. If you would invest  344.00  in Insurance Australia Group on October 7, 2024 and sell it today you would earn a total of  161.00  from holding Insurance Australia Group or generate 46.8% return on investment over 90 days.

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

Advanced Drainage Systems  vs.  Insurance Australia Group

Advanced Drainage Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Advanced Drainage Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Insurance Australia

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Insurance Australia Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Insurance Australia reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Advanced Drainage and Insurance Australia

The main advantage of trading using opposite Advanced Drainage and Insurance Australia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advanced Drainage 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 Advanced Drainage Systems 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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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.