Correlation Between Kwong Fong and Kaori Heat

Can any of the company-specific risk be diversified away by investing in both Kwong Fong and Kaori Heat 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 Kaori Heat 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 Kaori Heat Treatment, you can compare the effects of market volatilities on Kwong Fong and Kaori Heat 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 Kaori Heat. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kwong Fong and Kaori Heat.

Diversification Opportunities for Kwong Fong and Kaori Heat

0.17

Correlation Coefficient

Kwong Fong  Kaori Heat

Average diversification

The 3 months correlation between Kwong and Kaori is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Kwong Fong Industries and Kaori Heat Treatment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kaori Heat Treatment 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 Kaori Heat. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kaori Heat Treatment has no effect on the direction of Kwong Fong i.e., Kwong Fong and Kaori Heat go up and down completely randomly.

Pair Corralation between Kwong Fong and Kaori Heat

Assuming the 90 days trading horizon Kwong Fong Industries is expected to generate 0.3 times more return on investment than Kaori Heat. However, Kwong Fong Industries is 3.37 times less risky than Kaori Heat. It trades about 0.0 of its potential returns per unit of risk. Kaori Heat Treatment is currently generating about -0.12 per unit of risk. If you would invest  1,290  in Kwong Fong Industries on December 30, 2024 and sell it today you would lose (5.00) from holding Kwong Fong Industries or give up 0.39% of portfolio value over 90 days.

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

Kwong Fong Industries  vs.  Kaori Heat Treatment

Kwong Fong Industries

Risk-Adjusted Performance

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 fairly stable basic indicators, Kwong Fong is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Kaori Heat Treatment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kaori Heat Treatment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Kwong Fong and Kaori Heat

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

The idea behind Kwong Fong Industries and Kaori Heat Treatment 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.