Correlation Between Mega Financial and First Insurance

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

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

Diversification Opportunities for Mega Financial and First Insurance

0.63

Correlation Coefficient

Mega Financial  First Insurance

Poor diversification

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

Pair Corralation between Mega Financial and First Insurance

Assuming the 90 days trading horizon Mega Financial is expected to generate 29.25 times less return on investment than First Insurance. But when comparing it to its historical volatility, Mega Financial Holding is 1.09 times less risky than First Insurance. It trades about 0.01 of its potential returns per unit of risk. First Insurance Co is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  2,255  in First Insurance Co on September 14, 2024 and sell it today you would earn a total of  295.00  from holding First Insurance Co or generate 13.08% return on investment over 90 days.

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

Mega Financial Holding  vs.  First Insurance Co

Mega Financial Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mega Financial Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Mega Financial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

First Insurance

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Insurance Co are ranked lower than 19 (%) 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 Mega Financial and First Insurance

The main advantage of trading using opposite Mega Financial and First Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mega Financial 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 Mega Financial Holding 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.

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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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.