Correlation Between Kao Fong and AzureWave Technologies

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

Diversification Opportunities for Kao Fong and AzureWave Technologies

0.56

Correlation Coefficient

Kao Fong  AzureWave Technologies

Very weak diversification

The 3 months correlation between Kao and AzureWave is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Kao Fong Machinery and AzureWave Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AzureWave 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 AzureWave Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AzureWave Technologies has no effect on the direction of Kao Fong i.e., Kao Fong and AzureWave Technologies go up and down completely randomly.

Pair Corralation between Kao Fong and AzureWave Technologies

Assuming the 90 days trading horizon Kao Fong is expected to generate 2.05 times less return on investment than AzureWave Technologies. In addition to that, Kao Fong is 1.12 times more volatile than AzureWave Technologies. It trades about 0.07 of its total potential returns per unit of risk. AzureWave Technologies is currently generating about 0.16 per unit of volatility. If you would invest  4,450  in AzureWave Technologies on October 7, 2024 and sell it today you would earn a total of  1,800  from holding AzureWave Technologies or generate 40.45% return on investment over 90 days.

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

Kao Fong Machinery  vs.  AzureWave Technologies

Kao Fong Machinery

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Kao Fong Machinery are ranked lower than 5 (%) 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.

AzureWave Technologies

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AzureWave Technologies are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, AzureWave Technologies showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kao Fong and AzureWave Technologies

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

The idea behind Kao Fong Machinery and AzureWave 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.

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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.