Correlation Between Safety Insurance and Transurban

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

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

Diversification Opportunities for Safety Insurance and Transurban

0.67

Correlation Coefficient

Safety Insurance  Transurban

Poor diversification

The 3 months correlation between Safety and Transurban is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Safety Insurance Group and Transurban Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transurban Group and Safety Insurance 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 Safety Insurance Group are associated (or correlated) with Transurban. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transurban Group has no effect on the direction of Safety Insurance i.e., Safety Insurance and Transurban go up and down completely randomly.

Pair Corralation between Safety Insurance and Transurban

Assuming the 90 days horizon Safety Insurance Group is expected to under-perform the Transurban. In addition to that, Safety Insurance is 1.35 times more volatile than Transurban Group. It trades about -0.06 of its total potential returns per unit of risk. Transurban Group is currently generating about -0.06 per unit of volatility. If you would invest  798.00  in Transurban Group on December 30, 2024 and sell it today you would lose (37.00) from holding Transurban Group or give up 4.64% of portfolio value over 90 days.

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

Safety Insurance Group  vs.  Transurban Group

Safety Insurance

Risk-Adjusted Performance

Very Weak

Over the last 90 days Safety Insurance Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Safety Insurance is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Transurban Group

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Safety Insurance and Transurban

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

The idea behind Safety Insurance Group and Transurban 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.