Correlation Between Kung Long and Wan Hai

Can any of the company-specific risk be diversified away by investing in both Kung Long and Wan Hai 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 Kung Long and Wan Hai into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Kung Long Batteries and Wan Hai Lines, you can compare the effects of market volatilities on Kung Long and Wan Hai 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 Kung Long with a short position of Wan Hai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kung Long and Wan Hai.

Diversification Opportunities for Kung Long and Wan Hai

0.65

Correlation Coefficient

Kung Long  Wan Hai

Poor diversification

The 3 months correlation between Kung and Wan is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Kung Long Batteries and Wan Hai Lines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wan Hai Lines and Kung Long 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 Kung Long Batteries are associated (or correlated) with Wan Hai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wan Hai Lines has no effect on the direction of Kung Long i.e., Kung Long and Wan Hai go up and down completely randomly.

Pair Corralation between Kung Long and Wan Hai

Assuming the 90 days trading horizon Kung Long is expected to generate 24.22 times less return on investment than Wan Hai. But when comparing it to its historical volatility, Kung Long Batteries is 2.63 times less risky than Wan Hai. It trades about 0.0 of its potential returns per unit of risk. Wan Hai Lines is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  8,050  in Wan Hai Lines on December 28, 2024 and sell it today you would earn a total of  250.00  from holding Wan Hai Lines or generate 3.11% return on investment over 90 days.

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

Kung Long Batteries  vs.  Wan Hai Lines

Kung Long Batteries

Risk-Adjusted Performance

Very Weak

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

Wan Hai Lines

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wan Hai Lines are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Wan Hai 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 Kung Long and Wan Hai

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

The idea behind Kung Long Batteries and Wan Hai Lines 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.