Correlation Between AIICO INSURANCE and NIGERIAN EXCHANGE

Can any of the company-specific risk be diversified away by investing in both AIICO INSURANCE and NIGERIAN EXCHANGE 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 EXCHANGE 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 EXCHANGE GROUP, you can compare the effects of market volatilities on AIICO INSURANCE and NIGERIAN EXCHANGE 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 EXCHANGE. Check out your portfolio center. Please also check ongoing floating volatility patterns of AIICO INSURANCE and NIGERIAN EXCHANGE.

Diversification Opportunities for AIICO INSURANCE and NIGERIAN EXCHANGE

0.63

Correlation Coefficient

AIICO INSURANCE  NIGERIAN EXCHANGE

Poor diversification

The 3 months correlation between AIICO and NIGERIAN is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding AIICO INSURANCE PLC and NIGERIAN EXCHANGE GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NIGERIAN EXCHANGE 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 EXCHANGE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NIGERIAN EXCHANGE has no effect on the direction of AIICO INSURANCE i.e., AIICO INSURANCE and NIGERIAN EXCHANGE go up and down completely randomly.

Pair Corralation between AIICO INSURANCE and NIGERIAN EXCHANGE

Assuming the 90 days trading horizon AIICO INSURANCE PLC is expected to generate 1.25 times more return on investment than NIGERIAN EXCHANGE. However, AIICO INSURANCE is 1.25 times more volatile than NIGERIAN EXCHANGE GROUP. It trades about 0.14 of its potential returns per unit of risk. NIGERIAN EXCHANGE GROUP is currently generating about 0.12 per unit of risk. If you would invest  120.00  in AIICO INSURANCE PLC on November 29, 2024 and sell it today you would earn a total of  42.00  from holding AIICO INSURANCE PLC or generate 35.0% 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 EXCHANGE GROUP

AIICO INSURANCE PLC

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AIICO INSURANCE PLC are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain fundamental indicators, AIICO INSURANCE showed solid returns over the last few months and may actually be approaching a breakup point.

NIGERIAN EXCHANGE

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NIGERIAN EXCHANGE GROUP are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, NIGERIAN EXCHANGE unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AIICO INSURANCE and NIGERIAN EXCHANGE

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

The idea behind AIICO INSURANCE PLC and NIGERIAN EXCHANGE 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.