Correlation Between Insurance Australia and AJ LUCAS

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

Diversification Opportunities for Insurance Australia and AJ LUCAS

-0.02

Correlation Coefficient

Insurance Australia  AJ LUCAS

Good diversification

The 3 months correlation between Insurance and FW9 is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Insurance Australia Group and AJ LUCAS GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AJ LUCAS GROUP 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 AJ LUCAS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AJ LUCAS GROUP has no effect on the direction of Insurance Australia i.e., Insurance Australia and AJ LUCAS go up and down completely randomly.

Pair Corralation between Insurance Australia and AJ LUCAS

Assuming the 90 days horizon Insurance Australia Group is expected to under-perform the AJ LUCAS. But the stock apears to be less risky and, when comparing its historical volatility, Insurance Australia Group is 56.85 times less risky than AJ LUCAS. The stock trades about -0.05 of its potential returns per unit of risk. The AJ LUCAS GROUP is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  0.05  in AJ LUCAS GROUP on December 2, 2024 and sell it today you would earn a total of  0.15  from holding AJ LUCAS GROUP or generate 300.0% return on investment over 90 days.

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

Insurance Australia Group  vs.  AJ LUCAS GROUP

Insurance Australia

Risk-Adjusted Performance

Very Weak

Over the last 90 days Insurance Australia Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

AJ LUCAS GROUP

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AJ LUCAS GROUP are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, AJ LUCAS reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Insurance Australia and AJ LUCAS

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

The idea behind Insurance Australia Group and AJ LUCAS 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.

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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.