Correlation Between Taichung Commercial and First Insurance

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

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

Diversification Opportunities for Taichung Commercial and First Insurance

0.63

Correlation Coefficient

Taichung Commercial  First Insurance

Poor diversification

The 3 months correlation between Taichung and First is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Taichung Commercial Bank and First Insurance Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Insurance and Taichung Commercial 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 Taichung Commercial Bank 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 Taichung Commercial i.e., Taichung Commercial and First Insurance go up and down completely randomly.

Pair Corralation between Taichung Commercial and First Insurance

Assuming the 90 days trading horizon Taichung Commercial is expected to generate 2.06 times less return on investment than First Insurance. But when comparing it to its historical volatility, Taichung Commercial Bank is 1.01 times less risky than First Insurance. It trades about 0.14 of its potential returns per unit of risk. First Insurance Co is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  2,220  in First Insurance Co on September 12, 2024 and sell it today you would earn a total of  335.00  from holding First Insurance Co or generate 15.09% return on investment over 90 days.

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

Taichung Commercial Bank  vs.  First Insurance Co

Taichung Commercial Bank

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Taichung Commercial Bank are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taichung Commercial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

First Insurance

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Insurance Co are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, First Insurance showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Taichung Commercial and First Insurance

The main advantage of trading using opposite Taichung Commercial and First Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taichung Commercial 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 Taichung Commercial Bank 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.