Correlation Between Insurance Australia and Wesfarmers

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

Diversification Opportunities for Insurance Australia and Wesfarmers

0.79

Correlation Coefficient

Insurance Australia  Wesfarmers

Poor diversification

The 3 months correlation between Insurance and Wesfarmers is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Insurance Australia Group and Wesfarmers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wesfarmers 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 Wesfarmers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wesfarmers has no effect on the direction of Insurance Australia i.e., Insurance Australia and Wesfarmers go up and down completely randomly.

Pair Corralation between Insurance Australia and Wesfarmers

Assuming the 90 days trading horizon Insurance Australia Group is expected to generate 1.05 times more return on investment than Wesfarmers. However, Insurance Australia is 1.05 times more volatile than Wesfarmers. It trades about 0.18 of its potential returns per unit of risk. Wesfarmers is currently generating about 0.03 per unit of risk. If you would invest  750.00  in Insurance Australia Group on October 22, 2024 and sell it today you would earn a total of  116.00  from holding Insurance Australia Group or generate 15.47% 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.  Wesfarmers

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.

Wesfarmers

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wesfarmers are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Wesfarmers is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Insurance Australia and Wesfarmers

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

The idea behind Insurance Australia Group and Wesfarmers 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.