Correlation Between Federal Agricultural and QBE Insurance

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

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

Diversification Opportunities for Federal Agricultural and QBE Insurance

0.93

Correlation Coefficient

Federal Agricultural  QBE Insurance

Almost no diversification

The 3 months correlation between Federal and QBE is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Federal Agricultural Mortgage and QBE Insurance Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on QBE Insurance Group and Federal Agricultural 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 Federal Agricultural Mortgage are associated (or correlated) with QBE Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of QBE Insurance Group has no effect on the direction of Federal Agricultural i.e., Federal Agricultural and QBE Insurance go up and down completely randomly.

Pair Corralation between Federal Agricultural and QBE Insurance

Assuming the 90 days horizon Federal Agricultural Mortgage is expected to generate 1.42 times more return on investment than QBE Insurance. However, Federal Agricultural is 1.42 times more volatile than QBE Insurance Group. It trades about -0.15 of its potential returns per unit of risk. QBE Insurance Group is currently generating about -0.28 per unit of risk. If you would invest  19,861  in Federal Agricultural Mortgage on October 3, 2024 and sell it today you would lose (1,061) from holding Federal Agricultural Mortgage or give up 5.34% of portfolio value over 90 days.

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

Federal Agricultural Mortgage  vs.  QBE Insurance Group

Federal Agricultural

Risk-Adjusted Performance

9 of 100

OK

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

QBE Insurance Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in QBE Insurance Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, QBE Insurance reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Federal Agricultural and QBE Insurance

The main advantage of trading using opposite Federal Agricultural and QBE Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federal Agricultural position performs unexpectedly, QBE Insurance 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 QBE Insurance will offset losses from the drop in QBE Insurance's long position.

The idea behind Federal Agricultural Mortgage and QBE Insurance 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.