Correlation Between Insurance Australia and BJs Wholesale

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

Diversification Opportunities for Insurance Australia and BJs Wholesale

0.89

Correlation Coefficient

Insurance Australia  BJs Wholesale

Very poor diversification

The 3 months correlation between Insurance and BJs is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Insurance Australia Group and BJs Wholesale Club in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BJs Wholesale Club 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 BJs Wholesale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BJs Wholesale Club has no effect on the direction of Insurance Australia i.e., Insurance Australia and BJs Wholesale go up and down completely randomly.

Pair Corralation between Insurance Australia and BJs Wholesale

Assuming the 90 days horizon Insurance Australia Group is expected to generate 1.03 times more return on investment than BJs Wholesale. However, Insurance Australia is 1.03 times more volatile than BJs Wholesale Club. It trades about 0.11 of its potential returns per unit of risk. BJs Wholesale Club is currently generating about 0.11 per unit of risk. If you would invest  448.00  in Insurance Australia Group on October 5, 2024 and sell it today you would earn a total of  52.00  from holding Insurance Australia Group or generate 11.61% return on investment over 90 days.

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

Insurance Australia Group  vs.  BJs Wholesale Club

Insurance Australia

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Insurance Australia Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Insurance Australia reported solid returns over the last few months and may actually be approaching a breakup point.

BJs Wholesale Club

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days BJs Wholesale Club has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, BJs Wholesale may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Insurance Australia and BJs Wholesale

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

The idea behind Insurance Australia Group and BJs Wholesale Club 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.