Correlation Between Tokio Marine and Insurance Australia

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

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

Diversification Opportunities for Tokio Marine and Insurance Australia

0.87

Correlation Coefficient

Tokio Marine  Insurance Australia

Very poor diversification

The 3 months correlation between Tokio and Insurance is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Tokio Marine Holdings and Insurance Australia Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insurance Australia and Tokio Marine 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 Tokio Marine Holdings 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 Tokio Marine i.e., Tokio Marine and Insurance Australia go up and down completely randomly.

Pair Corralation between Tokio Marine and Insurance Australia

Assuming the 90 days horizon Tokio Marine Holdings is expected to generate 1.75 times more return on investment than Insurance Australia. However, Tokio Marine is 1.75 times more volatile than Insurance Australia Group. It trades about 0.06 of its potential returns per unit of risk. Insurance Australia Group is currently generating about 0.06 per unit of risk. If you would invest  1,636  in Tokio Marine Holdings on January 31, 2024 and sell it today you would earn a total of  1,466  from holding Tokio Marine Holdings or generate 89.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.67%
Values	Daily Returns

Tokio Marine Holdings  vs.  Insurance Australia Group

Tokio Marine Holdings

Risk-Adjusted Performance

11 of 100

Good

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

Insurance Australia

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Insurance Australia Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical and fundamental indicators, Insurance Australia may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Tokio Marine and Insurance Australia

The main advantage of trading using opposite Tokio Marine and Insurance Australia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tokio Marine 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 Tokio Marine Holdings 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.