Correlation Between Insurance Australia and Progressive

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

Diversification Opportunities for Insurance Australia and Progressive

0.83

Correlation Coefficient

Insurance Australia  Progressive

Very poor diversification

The 3 months correlation between Insurance and Progressive is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Insurance Australia Group and The Progressive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Progressive 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 Progressive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Progressive has no effect on the direction of Insurance Australia i.e., Insurance Australia and Progressive go up and down completely randomly.

Pair Corralation between Insurance Australia and Progressive

Assuming the 90 days horizon Insurance Australia is expected to generate 1.46 times less return on investment than Progressive. In addition to that, Insurance Australia is 1.16 times more volatile than The Progressive. It trades about 0.08 of its total potential returns per unit of risk. The Progressive is currently generating about 0.14 per unit of volatility. If you would invest  22,780  in The Progressive on August 31, 2024 and sell it today you would earn a total of  2,975  from holding The Progressive or generate 13.06% 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.  The Progressive

Insurance Australia

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Insurance Australia Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Insurance Australia may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Progressive

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Progressive are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Progressive reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Insurance Australia and Progressive

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

The idea behind Insurance Australia Group and The Progressive 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.