Correlation Between Highwealth Construction and Kao Fong

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

By analyzing existing cross correlation between Highwealth Construction Corp and Kao Fong Machinery, you can compare the effects of market volatilities on Highwealth Construction and Kao Fong 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 Highwealth Construction with a short position of Kao Fong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Highwealth Construction and Kao Fong.

Diversification Opportunities for Highwealth Construction and Kao Fong

0.46

Correlation Coefficient

Highwealth Construction  Kao Fong

Very weak diversification

The 3 months correlation between Highwealth and Kao is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Highwealth Construction Corp and Kao Fong Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kao Fong Machinery and Highwealth Construction 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 Highwealth Construction Corp are associated (or correlated) with Kao Fong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kao Fong Machinery has no effect on the direction of Highwealth Construction i.e., Highwealth Construction and Kao Fong go up and down completely randomly.

Pair Corralation between Highwealth Construction and Kao Fong

Assuming the 90 days trading horizon Highwealth Construction Corp is expected to under-perform the Kao Fong. But the stock apears to be less risky and, when comparing its historical volatility, Highwealth Construction Corp is 2.27 times less risky than Kao Fong. The stock trades about -0.03 of its potential returns per unit of risk. The Kao Fong Machinery is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  4,230  in Kao Fong Machinery on September 23, 2024 and sell it today you would earn a total of  595.00  from holding Kao Fong Machinery or generate 14.07% return on investment over 90 days.

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

Highwealth Construction Corp  vs.  Kao Fong Machinery

Highwealth Construction

Risk-Adjusted Performance

0 of 100

Very Weak

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

Kao Fong Machinery

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kao Fong Machinery are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Kao Fong may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Highwealth Construction and Kao Fong

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

The idea behind Highwealth Construction Corp and Kao Fong Machinery 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.