Correlation Between Insurance Australia and Fortune Brands

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

Diversification Opportunities for Insurance Australia and Fortune Brands

-0.72

Correlation Coefficient

Insurance Australia  Fortune Brands

Pay attention - limited upside

The 3 months correlation between Insurance and Fortune is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Insurance Australia Group and Fortune Brands Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortune Brands Home 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 Fortune Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortune Brands Home has no effect on the direction of Insurance Australia i.e., Insurance Australia and Fortune Brands go up and down completely randomly.

Pair Corralation between Insurance Australia and Fortune Brands

Assuming the 90 days horizon Insurance Australia Group is expected to generate 0.91 times more return on investment than Fortune Brands. However, Insurance Australia Group is 1.1 times less risky than Fortune Brands. It trades about 0.12 of its potential returns per unit of risk. Fortune Brands Home is currently generating about -0.01 per unit of risk. If you would invest  316.00  in Insurance Australia Group on October 10, 2024 and sell it today you would earn a total of  189.00  from holding Insurance Australia Group or generate 59.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.6%
Values	Daily Returns

Insurance Australia Group  vs.  Fortune Brands Home

Insurance Australia

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Insurance Australia Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Insurance Australia reported solid returns over the last few months and may actually be approaching a breakup point.

Fortune Brands Home

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fortune Brands Home has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental drivers remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Insurance Australia and Fortune Brands

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

The idea behind Insurance Australia Group and Fortune Brands Home 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.