Correlation Between Insurance Australia and Global Indemnity

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

Diversification Opportunities for Insurance Australia and Global Indemnity

0.68

Correlation Coefficient

Insurance Australia  Global Indemnity

Poor diversification

The 3 months correlation between Insurance and Global is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Insurance Australia Group and Global Indemnity PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Indemnity PLC 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 Global Indemnity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Indemnity PLC has no effect on the direction of Insurance Australia i.e., Insurance Australia and Global Indemnity go up and down completely randomly.

Pair Corralation between Insurance Australia and Global Indemnity

Assuming the 90 days horizon Insurance Australia is expected to generate 3.39 times less return on investment than Global Indemnity. In addition to that, Insurance Australia is 3.03 times more volatile than Global Indemnity PLC. It trades about 0.02 of its total potential returns per unit of risk. Global Indemnity PLC is currently generating about 0.17 per unit of volatility. If you would invest  3,301  in Global Indemnity PLC on October 8, 2024 and sell it today you would earn a total of  380.00  from holding Global Indemnity PLC or generate 11.51% 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.  Global Indemnity PLC

Insurance Australia

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Insurance Australia Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, Insurance Australia is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Global Indemnity PLC

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Global Indemnity PLC are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent essential indicators, Global Indemnity may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Insurance Australia and Global Indemnity

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

The idea behind Insurance Australia Group and Global Indemnity PLC 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 Channel module to use Commodity Channel Index to analyze current equity momentum.