Correlation Between First Insurance and Chunghwa Precision

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

Diversification Opportunities for First Insurance and Chunghwa Precision

0.89

Correlation Coefficient

First Insurance  Chunghwa Precision

Very poor diversification

The 3 months correlation between First and Chunghwa is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding First Insurance Co and Chunghwa Precision Test in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chunghwa Precision Test 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 Chunghwa Precision. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chunghwa Precision Test has no effect on the direction of First Insurance i.e., First Insurance and Chunghwa Precision go up and down completely randomly.

Pair Corralation between First Insurance and Chunghwa Precision

Assuming the 90 days trading horizon First Insurance is expected to generate 4.6 times less return on investment than Chunghwa Precision. But when comparing it to its historical volatility, First Insurance Co is 4.05 times less risky than Chunghwa Precision. It trades about 0.17 of its potential returns per unit of risk. Chunghwa Precision Test is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  53,800  in Chunghwa Precision Test on October 26, 2024 and sell it today you would earn a total of  27,000  from holding Chunghwa Precision Test or generate 50.19% return on investment over 90 days.

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

First Insurance Co  vs.  Chunghwa Precision Test

First Insurance

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Insurance Co are ranked lower than 13 (%) 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.

Chunghwa Precision Test

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chunghwa Precision Test are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Chunghwa Precision showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Insurance and Chunghwa Precision

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

The idea behind First Insurance Co and Chunghwa Precision Test 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.