Correlation Between Kao Fong and Pacific Construction

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

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

Diversification Opportunities for Kao Fong and Pacific Construction

0.09

Correlation Coefficient

Kao Fong  Pacific Construction

Significant diversification

The 3 months correlation between Kao and Pacific is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Kao Fong Machinery and Pacific Construction Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific Construction and Kao Fong 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 Kao Fong Machinery are associated (or correlated) with Pacific Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific Construction has no effect on the direction of Kao Fong i.e., Kao Fong and Pacific Construction go up and down completely randomly.

Pair Corralation between Kao Fong and Pacific Construction

Assuming the 90 days trading horizon Kao Fong Machinery is expected to generate 2.35 times more return on investment than Pacific Construction. However, Kao Fong is 2.35 times more volatile than Pacific Construction Co. It trades about 0.0 of its potential returns per unit of risk. Pacific Construction Co is currently generating about -0.01 per unit of risk. If you would invest  4,950  in Kao Fong Machinery on September 20, 2024 and sell it today you would lose (225.00) from holding Kao Fong Machinery or give up 4.55% of portfolio value over 90 days.

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

Kao Fong Machinery  vs.  Pacific Construction Co

Kao Fong Machinery

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pacific Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pacific Construction Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Pacific Construction 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 Kao Fong and Pacific Construction

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

The idea behind Kao Fong Machinery and Pacific Construction Co 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.