Correlation Between Allstate and Insurance Australia

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

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

Diversification Opportunities for Allstate and Insurance Australia

-0.6

Correlation Coefficient

Allstate  Insurance Australia

Excellent diversification

The 3 months correlation between Allstate and Insurance is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding The Allstate and Insurance Australia Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insurance Australia and Allstate 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 The Allstate 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 Allstate i.e., Allstate and Insurance Australia go up and down completely randomly.

Pair Corralation between Allstate and Insurance Australia

Assuming the 90 days trading horizon Allstate is expected to generate 15.59 times less return on investment than Insurance Australia. But when comparing it to its historical volatility, The Allstate is 2.99 times less risky than Insurance Australia. It trades about 0.01 of its potential returns per unit of risk. Insurance Australia Group is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,959  in Insurance Australia Group on October 7, 2024 and sell it today you would earn a total of  533.00  from holding Insurance Australia Group or generate 27.21% return on investment over 90 days.

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

The Allstate  vs.  Insurance Australia Group

Allstate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Allstate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong essential indicators, Allstate is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Insurance Australia

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Insurance Australia Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, Insurance Australia is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Allstate and Insurance Australia

The main advantage of trading using opposite Allstate and Insurance Australia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Allstate 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 The Allstate 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.