Correlation Between Air Asia and Kao Fong

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

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

Diversification Opportunities for Air Asia and Kao Fong

0.42

Correlation Coefficient

Air Asia  Kao Fong

Very weak diversification

The 3 months correlation between Air and Kao is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Air Asia Co 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 Air Asia 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 Air Asia Co 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 Air Asia i.e., Air Asia and Kao Fong go up and down completely randomly.

Pair Corralation between Air Asia and Kao Fong

Assuming the 90 days trading horizon Air Asia Co is expected to generate 0.97 times more return on investment than Kao Fong. However, Air Asia Co is 1.03 times less risky than Kao Fong. It trades about 0.17 of its potential returns per unit of risk. Kao Fong Machinery is currently generating about 0.13 per unit of risk. If you would invest  3,250  in Air Asia Co on October 10, 2024 and sell it today you would earn a total of  410.00  from holding Air Asia Co or generate 12.62% return on investment over 90 days.

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

Air Asia Co  vs.  Kao Fong Machinery

Air Asia

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Air Asia Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Air Asia showed solid returns over the last few months and may actually be approaching a breakup point.

Kao Fong Machinery

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with Air Asia and Kao Fong

The main advantage of trading using opposite Air Asia and Kao Fong positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air Asia 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 Air Asia Co 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.

Check out your portfolio center.

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 Transaction History module to view history of all your transactions and understand their impact on performance.