Correlation Between Markel and Insurance Australia

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

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

Diversification Opportunities for Markel and Insurance Australia

0.87

Correlation Coefficient

Markel  Insurance Australia

Very poor diversification

The 3 months correlation between Markel and Insurance is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Markel and Insurance Australia Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insurance Australia and Markel 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 Markel 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 Markel i.e., Markel and Insurance Australia go up and down completely randomly.

Pair Corralation between Markel and Insurance Australia

Assuming the 90 days horizon Markel is expected to generate 0.89 times more return on investment than Insurance Australia. However, Markel is 1.13 times less risky than Insurance Australia. It trades about 0.18 of its potential returns per unit of risk. Insurance Australia Group is currently generating about 0.11 per unit of risk. If you would invest  143,400  in Markel on September 2, 2024 and sell it today you would earn a total of  26,900  from holding Markel or generate 18.76% return on investment over 90 days.

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

Markel  vs.  Insurance Australia Group

Markel

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Markel are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Markel reported solid returns over the last few months and may actually be approaching a breakup point.

Insurance Australia

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Insurance Australia Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Insurance Australia may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Markel and Insurance Australia

The main advantage of trading using opposite Markel and Insurance Australia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Markel 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 Markel 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.

Check out your portfolio center.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.