Correlation Between First Insurance and Formosa Petrochemical

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

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

Diversification Opportunities for First Insurance and Formosa Petrochemical

-0.71

Correlation Coefficient

First Insurance  Formosa Petrochemical

Pay attention - limited upside

The 3 months correlation between First and Formosa is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding First Insurance Co and Formosa Petrochemical Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Petrochemical and First 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 First Insurance Co are associated (or correlated) with Formosa Petrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa Petrochemical has no effect on the direction of First Insurance i.e., First Insurance and Formosa Petrochemical go up and down completely randomly.

Pair Corralation between First Insurance and Formosa Petrochemical

Assuming the 90 days trading horizon First Insurance Co is expected to generate 0.58 times more return on investment than Formosa Petrochemical. However, First Insurance Co is 1.73 times less risky than Formosa Petrochemical. It trades about 0.2 of its potential returns per unit of risk. Formosa Petrochemical Corp is currently generating about -0.45 per unit of risk. If you would invest  2,235  in First Insurance Co on October 8, 2024 and sell it today you would earn a total of  270.00  from holding First Insurance Co or generate 12.08% return on investment over 90 days.

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

First Insurance Co  vs.  Formosa Petrochemical Corp

First Insurance

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Insurance Co are ranked lower than 15 (%) 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 February 2025.

Formosa Petrochemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Formosa Petrochemical Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with First Insurance and Formosa Petrochemical

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

The idea behind First Insurance Co and Formosa Petrochemical Corp 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.