Correlation Between Insurance Australia and Origin Energy

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

Diversification Opportunities for Insurance Australia and Origin Energy

0.76

Correlation Coefficient

Insurance Australia  Origin Energy

Poor diversification

The 3 months correlation between Insurance and Origin is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Insurance Australia Group and Origin Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Origin Energy 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 Origin Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Origin Energy has no effect on the direction of Insurance Australia i.e., Insurance Australia and Origin Energy go up and down completely randomly.

Pair Corralation between Insurance Australia and Origin Energy

Assuming the 90 days trading horizon Insurance Australia Group is expected to generate 1.09 times more return on investment than Origin Energy. However, Insurance Australia is 1.09 times more volatile than Origin Energy. It trades about 0.15 of its potential returns per unit of risk. Origin Energy is currently generating about 0.06 per unit of risk. If you would invest  741.00  in Insurance Australia Group on September 24, 2024 and sell it today you would earn a total of  87.00  from holding Insurance Australia Group or generate 11.74% return on investment over 90 days.

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

Insurance Australia Group  vs.  Origin Energy

Insurance Australia

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Insurance Australia Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Insurance Australia may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Origin Energy

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Origin Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Origin Energy 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 Origin Energy

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

The idea behind Insurance Australia Group and Origin Energy 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.