Correlation Between Newretail and Kao Fong

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

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

Diversification Opportunities for Newretail and Kao Fong

0.35

Correlation Coefficient

Newretail  Kao Fong

Weak diversification

The 3 months correlation between Newretail and Kao is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Newretail 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 Newretail 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 Newretail 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 Newretail i.e., Newretail and Kao Fong go up and down completely randomly.

Pair Corralation between Newretail and Kao Fong

Assuming the 90 days trading horizon Newretail is expected to generate 2.67 times less return on investment than Kao Fong. But when comparing it to its historical volatility, Newretail Co is 1.89 times less risky than Kao Fong. It trades about 0.09 of its potential returns per unit of risk. Kao Fong Machinery is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  4,365  in Kao Fong Machinery on October 10, 2024 and sell it today you would earn a total of  395.00  from holding Kao Fong Machinery or generate 9.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Newretail Co  vs.  Kao Fong Machinery

Newretail

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with Newretail and Kao Fong

The main advantage of trading using opposite Newretail and Kao Fong positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Newretail 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 Newretail 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.