Correlation Between Powertech Industrial and First Insurance

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

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

Diversification Opportunities for Powertech Industrial and First Insurance

0.71

Correlation Coefficient

Powertech Industrial  First Insurance

Poor diversification

The 3 months correlation between Powertech and First is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Powertech Industrial Co and First Insurance Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Insurance and Powertech Industrial 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 Powertech Industrial Co 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 Powertech Industrial i.e., Powertech Industrial and First Insurance go up and down completely randomly.

Pair Corralation between Powertech Industrial and First Insurance

Assuming the 90 days trading horizon Powertech Industrial Co is expected to generate 3.9 times more return on investment than First Insurance. However, Powertech Industrial is 3.9 times more volatile than First Insurance Co. It trades about 0.18 of its potential returns per unit of risk. First Insurance Co is currently generating about 0.21 per unit of risk. If you would invest  2,475  in Powertech Industrial Co on September 16, 2024 and sell it today you would earn a total of  985.00  from holding Powertech Industrial Co or generate 39.8% return on investment over 90 days.

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

Powertech Industrial Co  vs.  First Insurance Co

Powertech Industrial

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Powertech Industrial Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Powertech Industrial showed solid returns over the last few months and may actually be approaching a breakup point.

First Insurance

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Insurance Co are ranked lower than 16 (%) 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 January 2025.

Pair Trading with Powertech Industrial and First Insurance

The main advantage of trading using opposite Powertech Industrial and First Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Powertech Industrial 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 Powertech Industrial Co 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.