Correlation Between AIICO INSURANCE and NIGERIAN BREWERIES

Can any of the company-specific risk be diversified away by investing in both AIICO INSURANCE and NIGERIAN BREWERIES 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 AIICO INSURANCE and NIGERIAN BREWERIES into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AIICO INSURANCE PLC and NIGERIAN BREWERIES PLC, you can compare the effects of market volatilities on AIICO INSURANCE and NIGERIAN BREWERIES 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 AIICO INSURANCE with a short position of NIGERIAN BREWERIES. Check out your portfolio center. Please also check ongoing floating volatility patterns of AIICO INSURANCE and NIGERIAN BREWERIES.

Diversification Opportunities for AIICO INSURANCE and NIGERIAN BREWERIES

0.72

Correlation Coefficient

AIICO INSURANCE  NIGERIAN BREWERIES

Poor diversification

The 3 months correlation between AIICO and NIGERIAN is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding AIICO INSURANCE PLC and NIGERIAN BREWERIES PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NIGERIAN BREWERIES PLC and AIICO INSURANCE 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 AIICO INSURANCE PLC are associated (or correlated) with NIGERIAN BREWERIES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NIGERIAN BREWERIES PLC has no effect on the direction of AIICO INSURANCE i.e., AIICO INSURANCE and NIGERIAN BREWERIES go up and down completely randomly.

Pair Corralation between AIICO INSURANCE and NIGERIAN BREWERIES

Assuming the 90 days trading horizon AIICO INSURANCE PLC is expected to generate 1.7 times more return on investment than NIGERIAN BREWERIES. However, AIICO INSURANCE is 1.7 times more volatile than NIGERIAN BREWERIES PLC. It trades about 0.45 of its potential returns per unit of risk. NIGERIAN BREWERIES PLC is currently generating about 0.36 per unit of risk. If you would invest  121.00  in AIICO INSURANCE PLC on October 8, 2024 and sell it today you would earn a total of  51.00  from holding AIICO INSURANCE PLC or generate 42.15% return on investment over 90 days.

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

AIICO INSURANCE PLC  vs.  NIGERIAN BREWERIES PLC

AIICO INSURANCE PLC

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AIICO INSURANCE PLC are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady fundamental indicators, AIICO INSURANCE showed solid returns over the last few months and may actually be approaching a breakup point.

NIGERIAN BREWERIES PLC

Risk-Adjusted Performance

8 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NIGERIAN BREWERIES PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent basic indicators, NIGERIAN BREWERIES sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AIICO INSURANCE and NIGERIAN BREWERIES

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

The idea behind AIICO INSURANCE PLC and NIGERIAN BREWERIES PLC 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.