Correlation Between New Asia and First Insurance

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

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

Diversification Opportunities for New Asia and First Insurance

0.69

Correlation Coefficient

New Asia  First Insurance

Poor diversification

The 3 months correlation between New and First is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding New Asia Construction and First Insurance Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Insurance and New Asia 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 New Asia Construction are associated (or correlated) with First Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Insurance has no effect on the direction of New Asia i.e., New Asia and First Insurance go up and down completely randomly.

Pair Corralation between New Asia and First Insurance

Assuming the 90 days trading horizon New Asia Construction is expected to generate 4.04 times more return on investment than First Insurance. However, New Asia is 4.04 times more volatile than First Insurance Co. It trades about 0.27 of its potential returns per unit of risk. First Insurance Co is currently generating about 0.18 per unit of risk. If you would invest  1,305  in New Asia Construction on December 10, 2024 and sell it today you would earn a total of  1,065  from holding New Asia Construction or generate 81.61% return on investment over 90 days.

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

New Asia Construction  vs.  First Insurance Co

New Asia Construction

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in New Asia Construction are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, New Asia showed solid returns over the last few months and may actually be approaching a breakup point.

First Insurance

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Insurance Co are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, First Insurance may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with New Asia and First Insurance

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

The idea behind New Asia Construction and First Insurance Co 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.