Correlation Between Root and Insurance Australia

Can any of the company-specific risk be diversified away by investing in both Root and Insurance Australia 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 Root and Insurance Australia into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Root Inc and Insurance Australia Group, you can compare the effects of market volatilities on Root and Insurance Australia 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 Root with a short position of Insurance Australia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Root and Insurance Australia.

Diversification Opportunities for Root and Insurance Australia

0.65

Correlation Coefficient

Root  Insurance Australia

Poor diversification

The 3 months correlation between Root and Insurance is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Root Inc and Insurance Australia Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insurance Australia and Root 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 Root Inc are associated (or correlated) with Insurance Australia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Insurance Australia has no effect on the direction of Root i.e., Root and Insurance Australia go up and down completely randomly.

Pair Corralation between Root and Insurance Australia

Given the investment horizon of 90 days Root Inc is expected to under-perform the Insurance Australia. But the stock apears to be less risky and, when comparing its historical volatility, Root Inc is 1.03 times less risky than Insurance Australia. The stock trades about -0.21 of its potential returns per unit of risk. The Insurance Australia Group is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  2,797  in Insurance Australia Group on October 8, 2024 and sell it today you would lose (106.00) from holding Insurance Australia Group or give up 3.79% of portfolio value over 90 days.

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

Root Inc  vs.  Insurance Australia Group

Root Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Root Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Root unveiled solid returns over the last few months and may actually be approaching a breakup point.

Insurance Australia

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Insurance Australia Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, Insurance Australia is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Root and Insurance Australia

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

The idea behind Root Inc and Insurance Australia 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.