Correlation Between Kung Long and Taiwan Steel

Can any of the company-specific risk be diversified away by investing in both Kung Long and Taiwan Steel 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 Taiwan Steel 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 Taiwan Steel Union, you can compare the effects of market volatilities on Kung Long and Taiwan Steel 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 Taiwan Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kung Long and Taiwan Steel.

Diversification Opportunities for Kung Long and Taiwan Steel

0.73

Correlation Coefficient

Kung Long  Taiwan Steel

Poor diversification

The 3 months correlation between Kung and Taiwan is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Kung Long Batteries and Taiwan Steel Union in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Steel Union 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 Taiwan Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Steel Union has no effect on the direction of Kung Long i.e., Kung Long and Taiwan Steel go up and down completely randomly.

Pair Corralation between Kung Long and Taiwan Steel

Assuming the 90 days trading horizon Kung Long is expected to generate 7.93 times less return on investment than Taiwan Steel. But when comparing it to its historical volatility, Kung Long Batteries is 1.75 times less risky than Taiwan Steel. It trades about 0.01 of its potential returns per unit of risk. Taiwan Steel Union is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  11,500  in Taiwan Steel Union on December 22, 2024 and sell it today you would earn a total of  400.00  from holding Taiwan Steel Union or generate 3.48% 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.  Taiwan Steel Union

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.

Taiwan Steel Union

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Steel Union are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Taiwan Steel 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 Taiwan Steel

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

The idea behind Kung Long Batteries and Taiwan Steel Union 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.