Correlation Between Kaulin Mfg and Cheng Fwa

Can any of the company-specific risk be diversified away by investing in both Kaulin Mfg and Cheng Fwa 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 Kaulin Mfg and Cheng Fwa into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Kaulin Mfg and Cheng Fwa

0.34

Correlation Coefficient

Kaulin Mfg  Cheng Fwa

Weak diversification

The 3 months correlation between Kaulin and Cheng is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Kaulin Mfg and Cheng Fwa Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cheng Fwa Industrial and Kaulin Mfg 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 Kaulin Mfg are associated (or correlated) with Cheng Fwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cheng Fwa Industrial has no effect on the direction of Kaulin Mfg i.e., Kaulin Mfg and Cheng Fwa go up and down completely randomly.

Pair Corralation between Kaulin Mfg and Cheng Fwa

Assuming the 90 days trading horizon Kaulin Mfg is expected to generate 1.2 times less return on investment than Cheng Fwa. But when comparing it to its historical volatility, Kaulin Mfg is 1.9 times less risky than Cheng Fwa. It trades about 0.45 of its potential returns per unit of risk. Cheng Fwa Industrial is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  2,855  in Cheng Fwa Industrial on December 4, 2024 and sell it today you would earn a total of  255.00  from holding Cheng Fwa Industrial or generate 8.93% return on investment over 90 days.

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

Kaulin Mfg  vs.  Cheng Fwa Industrial

Kaulin Mfg

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kaulin Mfg 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.

Cheng Fwa Industrial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cheng Fwa Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Cheng Fwa is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Kaulin Mfg and Cheng Fwa

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

The idea behind Kaulin Mfg and Cheng Fwa Industrial 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.