Correlation Between Kao Fong and Alchip Technologies

Can any of the company-specific risk be diversified away by investing in both Kao Fong and Alchip Technologies 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 Alchip Technologies 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 Alchip Technologies, you can compare the effects of market volatilities on Kao Fong and Alchip Technologies 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 Alchip Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kao Fong and Alchip Technologies.

Diversification Opportunities for Kao Fong and Alchip Technologies

0.4

Correlation Coefficient

Kao Fong  Alchip Technologies

Very weak diversification

The 3 months correlation between Kao and Alchip is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Kao Fong Machinery and Alchip Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alchip Technologies 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 Alchip Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alchip Technologies has no effect on the direction of Kao Fong i.e., Kao Fong and Alchip Technologies go up and down completely randomly.

Pair Corralation between Kao Fong and Alchip Technologies

Assuming the 90 days trading horizon Kao Fong Machinery is expected to under-perform the Alchip Technologies. In addition to that, Kao Fong is 1.09 times more volatile than Alchip Technologies. It trades about -0.19 of its total potential returns per unit of risk. Alchip Technologies is currently generating about -0.21 per unit of volatility. If you would invest  331,500  in Alchip Technologies on October 22, 2024 and sell it today you would lose (41,000) from holding Alchip Technologies or give up 12.37% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Kao Fong Machinery  vs.  Alchip Technologies

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.

Alchip Technologies

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alchip Technologies are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Alchip Technologies showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kao Fong and Alchip Technologies

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

The idea behind Kao Fong Machinery and Alchip Technologies 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.