Correlation Between Insurance Australia and Woolworths

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

Diversification Opportunities for Insurance Australia and Woolworths

-0.65

Correlation Coefficient

Insurance Australia  Woolworths

Excellent diversification

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

Pair Corralation between Insurance Australia and Woolworths

Assuming the 90 days trading horizon Insurance Australia Group is expected to generate 1.15 times more return on investment than Woolworths. However, Insurance Australia is 1.15 times more volatile than Woolworths. It trades about 0.18 of its potential returns per unit of risk. Woolworths is currently generating about -0.13 per unit of risk. If you would invest  741.00  in Insurance Australia Group on September 26, 2024 and sell it today you would earn a total of  109.00  from holding Insurance Australia Group or generate 14.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

Insurance Australia Group  vs.  Woolworths

Insurance Australia

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Insurance Australia Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Insurance Australia unveiled solid returns over the last few months and may actually be approaching a breakup point.

Woolworths

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Woolworths has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Insurance Australia and Woolworths

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

The idea behind Insurance Australia Group and Woolworths 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..