Correlation Between U Ming and Kung Sing

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

By analyzing existing cross correlation between U Ming Marine Transport and Kung Sing Engineering, you can compare the effects of market volatilities on U Ming and Kung Sing 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 U Ming with a short position of Kung Sing. Check out your portfolio center. Please also check ongoing floating volatility patterns of U Ming and Kung Sing.

Diversification Opportunities for U Ming and Kung Sing

0.8

Correlation Coefficient

U Ming  Kung Sing

Very poor diversification

The 3 months correlation between 2606 and Kung is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding U Ming Marine Transport and Kung Sing Engineering in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kung Sing Engineering and U Ming 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 U Ming Marine Transport are associated (or correlated) with Kung Sing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kung Sing Engineering has no effect on the direction of U Ming i.e., U Ming and Kung Sing go up and down completely randomly.

Pair Corralation between U Ming and Kung Sing

Assuming the 90 days trading horizon U Ming is expected to generate 1.3 times less return on investment than Kung Sing. In addition to that, U Ming is 1.52 times more volatile than Kung Sing Engineering. It trades about 0.11 of its total potential returns per unit of risk. Kung Sing Engineering is currently generating about 0.21 per unit of volatility. If you would invest  1,060  in Kung Sing Engineering on December 28, 2024 and sell it today you would earn a total of  270.00  from holding Kung Sing Engineering or generate 25.47% return on investment over 90 days.

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

U Ming Marine Transport  vs.  Kung Sing Engineering

U Ming Marine

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in U Ming Marine Transport are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, U Ming showed solid returns over the last few months and may actually be approaching a breakup point.

Kung Sing Engineering

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Kung Sing Engineering are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Kung Sing showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with U Ming and Kung Sing

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

The idea behind U Ming Marine Transport and Kung Sing Engineering 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.