Correlation Between Insurance Australia and L1 Long

Can any of the company-specific risk be diversified away by investing in both Insurance Australia and L1 Long 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 Insurance Australia and L1 Long into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Insurance Australia Group and L1 Long Short, you can compare the effects of market volatilities on Insurance Australia and L1 Long 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 Insurance Australia with a short position of L1 Long. Check out your portfolio center. Please also check ongoing floating volatility patterns of Insurance Australia and L1 Long.

Diversification Opportunities for Insurance Australia and L1 Long

-0.39

Correlation Coefficient

Insurance Australia  L1 Long

Very good diversification

The 3 months correlation between Insurance and LSF is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Insurance Australia Group and L1 Long Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on L1 Long Short and Insurance Australia 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 Insurance Australia Group are associated (or correlated) with L1 Long. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of L1 Long Short has no effect on the direction of Insurance Australia i.e., Insurance Australia and L1 Long go up and down completely randomly.

Pair Corralation between Insurance Australia and L1 Long

Assuming the 90 days trading horizon Insurance Australia Group is expected to generate 1.07 times more return on investment than L1 Long. However, Insurance Australia is 1.07 times more volatile than L1 Long Short. It trades about 0.16 of its potential returns per unit of risk. L1 Long Short is currently generating about 0.0 per unit of risk. If you would invest  612.00  in Insurance Australia Group on October 9, 2024 and sell it today you would earn a total of  244.00  from holding Insurance Australia Group or generate 39.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.4%
Values	Daily Returns

Insurance Australia Group  vs.  L1 Long Short

Insurance Australia

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Insurance Australia Group are ranked lower than 13 (%) 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.

L1 Long Short

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days L1 Long Short has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, L1 Long is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Insurance Australia and L1 Long

The main advantage of trading using opposite Insurance Australia and L1 Long positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Insurance Australia position performs unexpectedly, L1 Long 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 L1 Long will offset losses from the drop in L1 Long's long position.

The idea behind Insurance Australia Group and L1 Long Short 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 Commodity Directory module to find actively traded commodities issued by global exchanges.