Correlation Between Great China and First Insurance

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

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

Diversification Opportunities for Great China and First Insurance

0.8

Correlation Coefficient

Great China  First Insurance

Very poor diversification

The 3 months correlation between Great and First is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Great China Metal and First Insurance Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Insurance and Great China 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 Great China Metal 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 Great China i.e., Great China and First Insurance go up and down completely randomly.

Pair Corralation between Great China and First Insurance

Assuming the 90 days trading horizon Great China is expected to generate 5.92 times less return on investment than First Insurance. But when comparing it to its historical volatility, Great China Metal is 2.43 times less risky than First Insurance. It trades about 0.11 of its potential returns per unit of risk. First Insurance Co is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  2,525  in First Insurance Co on December 29, 2024 and sell it today you would earn a total of  530.00  from holding First Insurance Co or generate 20.99% return on investment over 90 days.

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

Great China Metal  vs.  First Insurance Co

Great China Metal

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Great China Metal are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Great China 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

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 Great China and First Insurance

The main advantage of trading using opposite Great China and First Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Great China 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 Great China Metal 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.