Correlation Between BSP Financial and Insurance Australia

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

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

Diversification Opportunities for BSP Financial and Insurance Australia

0.68

Correlation Coefficient

BSP Financial  Insurance Australia

Poor diversification

The 3 months correlation between BSP and Insurance is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding BSP Financial Group and Insurance Australia Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insurance Australia and BSP Financial 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 BSP Financial Group 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 BSP Financial i.e., BSP Financial and Insurance Australia go up and down completely randomly.

Pair Corralation between BSP Financial and Insurance Australia

Assuming the 90 days trading horizon BSP Financial is expected to generate 1.49 times less return on investment than Insurance Australia. In addition to that, BSP Financial is 1.48 times more volatile than Insurance Australia Group. It trades about 0.08 of its total potential returns per unit of risk. Insurance Australia Group is currently generating about 0.19 per unit of volatility. If you would invest  744.00  in Insurance Australia Group on October 8, 2024 and sell it today you would earn a total of  112.00  from holding Insurance Australia Group or generate 15.05% return on investment over 90 days.

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

BSP Financial Group  vs.  Insurance Australia Group

BSP Financial Group

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BSP Financial Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain essential indicators, BSP Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Insurance Australia

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Insurance Australia Group are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Insurance Australia unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BSP Financial and Insurance Australia

The main advantage of trading using opposite BSP Financial and Insurance Australia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BSP Financial 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 BSP Financial Group 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.