Correlation Between Kwong Fong and Hung Chou

Can any of the company-specific risk be diversified away by investing in both Kwong Fong and Hung Chou 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 Kwong Fong and Hung Chou into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Kwong Fong Industries and Hung Chou Fiber, you can compare the effects of market volatilities on Kwong Fong and Hung Chou 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 Kwong Fong with a short position of Hung Chou. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kwong Fong and Hung Chou.

Diversification Opportunities for Kwong Fong and Hung Chou

-0.51

Correlation Coefficient

Kwong Fong  Hung Chou

Excellent diversification

The 3 months correlation between Kwong and Hung is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Kwong Fong Industries and Hung Chou Fiber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hung Chou Fiber and Kwong Fong 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 Kwong Fong Industries are associated (or correlated) with Hung Chou. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hung Chou Fiber has no effect on the direction of Kwong Fong i.e., Kwong Fong and Hung Chou go up and down completely randomly.

Pair Corralation between Kwong Fong and Hung Chou

Assuming the 90 days trading horizon Kwong Fong Industries is expected to under-perform the Hung Chou. But the stock apears to be less risky and, when comparing its historical volatility, Kwong Fong Industries is 1.49 times less risky than Hung Chou. The stock trades about -0.34 of its potential returns per unit of risk. The Hung Chou Fiber is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,085  in Hung Chou Fiber on October 26, 2024 and sell it today you would earn a total of  35.00  from holding Hung Chou Fiber or generate 3.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Kwong Fong Industries  vs.  Hung Chou Fiber

Kwong Fong Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kwong Fong Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Hung Chou Fiber

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hung Chou Fiber are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Hung Chou showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kwong Fong and Hung Chou

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

The idea behind Kwong Fong Industries and Hung Chou Fiber 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.