Correlation Between Global Indemnity and Insurance Australia

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

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

Diversification Opportunities for Global Indemnity and Insurance Australia

0.63

Correlation Coefficient

Global Indemnity  Insurance Australia

Poor diversification

The 3 months correlation between Global and Insurance is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Global Indemnity PLC and Insurance Australia Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insurance Australia and Global Indemnity 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 Global Indemnity PLC 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 Global Indemnity i.e., Global Indemnity and Insurance Australia go up and down completely randomly.

Pair Corralation between Global Indemnity and Insurance Australia

Given the investment horizon of 90 days Global Indemnity PLC is expected to generate 20.65 times more return on investment than Insurance Australia. However, Global Indemnity is 20.65 times more volatile than Insurance Australia Group. It trades about 0.04 of its potential returns per unit of risk. Insurance Australia Group is currently generating about 0.06 per unit of risk. If you would invest  2,624  in Global Indemnity PLC on October 23, 2024 and sell it today you would earn a total of  852.00  from holding Global Indemnity PLC or generate 32.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.99%
Values	Daily Returns

Global Indemnity PLC  vs.  Insurance Australia Group

Global Indemnity PLC

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Global Indemnity PLC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong essential indicators, Global Indemnity is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Insurance Australia

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Insurance Australia Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Insurance Australia may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Global Indemnity and Insurance Australia

The main advantage of trading using opposite Global Indemnity and Insurance Australia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Indemnity 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 Global Indemnity PLC 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.