Correlation Between Insurance Australia and IBERDROLA ADR1

Can any of the company-specific risk be diversified away by investing in both Insurance Australia and IBERDROLA ADR1 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 IBERDROLA ADR1 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 IBERDROLA ADR1 EO, you can compare the effects of market volatilities on Insurance Australia and IBERDROLA ADR1 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 IBERDROLA ADR1. Check out your portfolio center. Please also check ongoing floating volatility patterns of Insurance Australia and IBERDROLA ADR1.

Diversification Opportunities for Insurance Australia and IBERDROLA ADR1

-0.62

Correlation Coefficient

Insurance Australia  IBERDROLA ADR1

Excellent diversification

The 3 months correlation between Insurance and IBERDROLA is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Insurance Australia Group and IBERDROLA ADR1 EO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IBERDROLA ADR1 EO 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 IBERDROLA ADR1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IBERDROLA ADR1 EO has no effect on the direction of Insurance Australia i.e., Insurance Australia and IBERDROLA ADR1 go up and down completely randomly.

Pair Corralation between Insurance Australia and IBERDROLA ADR1

Assuming the 90 days horizon Insurance Australia Group is expected to generate 1.74 times more return on investment than IBERDROLA ADR1. However, Insurance Australia is 1.74 times more volatile than IBERDROLA ADR1 EO. It trades about -0.02 of its potential returns per unit of risk. IBERDROLA ADR1 EO is currently generating about -0.28 per unit of risk. If you would invest  500.00  in Insurance Australia Group on September 24, 2024 and sell it today you would lose (4.00) from holding Insurance Australia Group or give up 0.8% of portfolio value over 90 days.

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

Insurance Australia Group  vs.  IBERDROLA ADR1 EO

Insurance Australia

Risk-Adjusted Performance

8 of 100

Modest

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.

IBERDROLA ADR1 EO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IBERDROLA ADR1 EO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, IBERDROLA ADR1 is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Insurance Australia and IBERDROLA ADR1

The main advantage of trading using opposite Insurance Australia and IBERDROLA ADR1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Insurance Australia position performs unexpectedly, IBERDROLA ADR1 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 IBERDROLA ADR1 will offset losses from the drop in IBERDROLA ADR1's long position.

The idea behind Insurance Australia Group and IBERDROLA ADR1 EO 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.