Correlation Between Trans Asia and Peoples Insurance

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

By analyzing existing cross correlation between Trans Asia Hotels and Peoples Insurance PLC, you can compare the effects of market volatilities on Trans Asia and Peoples 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 Trans Asia with a short position of Peoples Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Trans Asia and Peoples Insurance.

Diversification Opportunities for Trans Asia and Peoples Insurance

0.63

Correlation Coefficient

Trans Asia  Peoples Insurance

Poor diversification

The 3 months correlation between Trans and Peoples is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Trans Asia Hotels and Peoples Insurance PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Peoples Insurance PLC and Trans Asia 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 Trans Asia Hotels are associated (or correlated) with Peoples Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Peoples Insurance PLC has no effect on the direction of Trans Asia i.e., Trans Asia and Peoples Insurance go up and down completely randomly.

Pair Corralation between Trans Asia and Peoples Insurance

Assuming the 90 days trading horizon Trans Asia is expected to generate 3.17 times less return on investment than Peoples Insurance. But when comparing it to its historical volatility, Trans Asia Hotels is 1.35 times less risky than Peoples Insurance. It trades about 0.09 of its potential returns per unit of risk. Peoples Insurance PLC is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  2,100  in Peoples Insurance PLC on October 3, 2024 and sell it today you would earn a total of  1,090  from holding Peoples Insurance PLC or generate 51.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	86.25%
Values	Daily Returns

Trans Asia Hotels  vs.  Peoples Insurance PLC

Trans Asia Hotels

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Trans Asia Hotels are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Trans Asia sustained solid returns over the last few months and may actually be approaching a breakup point.

Peoples Insurance PLC

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Peoples Insurance PLC are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Peoples Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Trans Asia and Peoples Insurance

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

The idea behind Trans Asia Hotels and Peoples Insurance PLC 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.