Correlation Between NIGERIAN BREWERIES and AIICO INSURANCE

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

By analyzing existing cross correlation between NIGERIAN BREWERIES PLC and AIICO INSURANCE PLC, you can compare the effects of market volatilities on NIGERIAN BREWERIES and AIICO INSURANCE 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 NIGERIAN BREWERIES with a short position of AIICO INSURANCE. Check out your portfolio center. Please also check ongoing floating volatility patterns of NIGERIAN BREWERIES and AIICO INSURANCE.

Diversification Opportunities for NIGERIAN BREWERIES and AIICO INSURANCE

-0.02

Correlation Coefficient

NIGERIAN BREWERIES  AIICO INSURANCE

Good diversification

The 3 months correlation between NIGERIAN and AIICO is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding NIGERIAN BREWERIES PLC and AIICO INSURANCE PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AIICO INSURANCE PLC and NIGERIAN BREWERIES 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 NIGERIAN BREWERIES PLC are associated (or correlated) with AIICO INSURANCE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AIICO INSURANCE PLC has no effect on the direction of NIGERIAN BREWERIES i.e., NIGERIAN BREWERIES and AIICO INSURANCE go up and down completely randomly.

Pair Corralation between NIGERIAN BREWERIES and AIICO INSURANCE

Assuming the 90 days trading horizon NIGERIAN BREWERIES PLC is expected to under-perform the AIICO INSURANCE. But the stock apears to be less risky and, when comparing its historical volatility, NIGERIAN BREWERIES PLC is 1.26 times less risky than AIICO INSURANCE. The stock trades about -0.01 of its potential returns per unit of risk. The AIICO INSURANCE PLC is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  110.00  in AIICO INSURANCE PLC on September 14, 2024 and sell it today you would earn a total of  14.00  from holding AIICO INSURANCE PLC or generate 12.73% return on investment over 90 days.

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

NIGERIAN BREWERIES PLC  vs.  AIICO INSURANCE PLC

NIGERIAN BREWERIES PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NIGERIAN BREWERIES PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, NIGERIAN BREWERIES is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

AIICO INSURANCE PLC

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AIICO INSURANCE PLC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent fundamental indicators, AIICO INSURANCE showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NIGERIAN BREWERIES and AIICO INSURANCE

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

The idea behind NIGERIAN BREWERIES PLC and AIICO INSURANCE 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.