Correlation Between Kao Fong and Shieh Yih

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

Diversification Opportunities for Kao Fong and Shieh Yih

0.2

Correlation Coefficient

Kao Fong  Shieh Yih

Modest diversification

The 3 months correlation between Kao and Shieh is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Kao Fong Machinery and Shieh Yih Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shieh Yih Machinery 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 Shieh Yih. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shieh Yih Machinery has no effect on the direction of Kao Fong i.e., Kao Fong and Shieh Yih go up and down completely randomly.

Pair Corralation between Kao Fong and Shieh Yih

Assuming the 90 days trading horizon Kao Fong Machinery is expected to generate 1.85 times more return on investment than Shieh Yih. However, Kao Fong is 1.85 times more volatile than Shieh Yih Machinery. It trades about 0.04 of its potential returns per unit of risk. Shieh Yih Machinery is currently generating about 0.0 per unit of risk. If you would invest  4,640  in Kao Fong Machinery on September 24, 2024 and sell it today you would earn a total of  185.00  from holding Kao Fong Machinery or generate 3.99% return on investment over 90 days.

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

Kao Fong Machinery  vs.  Shieh Yih Machinery

Kao Fong Machinery

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kao Fong Machinery are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Kao Fong may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Shieh Yih Machinery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shieh Yih Machinery has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Shieh Yih 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 Shieh Yih

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

The idea behind Kao Fong Machinery and Shieh Yih 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.

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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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.