Correlation Between Kao Fong and Johnson Chemical

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

Diversification Opportunities for Kao Fong and Johnson Chemical

-0.35

Correlation Coefficient

Kao Fong  Johnson Chemical

Very good diversification

The 3 months correlation between Kao and Johnson is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Kao Fong Machinery and Johnson Chemical Pharmaceutica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Chemical Pha 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 Johnson Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Chemical Pha has no effect on the direction of Kao Fong i.e., Kao Fong and Johnson Chemical go up and down completely randomly.

Pair Corralation between Kao Fong and Johnson Chemical

Assuming the 90 days trading horizon Kao Fong Machinery is expected to under-perform the Johnson Chemical. In addition to that, Kao Fong is 2.44 times more volatile than Johnson Chemical Pharmaceutical. It trades about -0.02 of its total potential returns per unit of risk. Johnson Chemical Pharmaceutical is currently generating about 0.01 per unit of volatility. If you would invest  6,940  in Johnson Chemical Pharmaceutical on September 5, 2024 and sell it today you would earn a total of  30.00  from holding Johnson Chemical Pharmaceutical or generate 0.43% return on investment over 90 days.

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

Kao Fong Machinery  vs.  Johnson Chemical Pharmaceutica

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.

Johnson Chemical Pha

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Kao Fong Machinery and Johnson Chemical Pharmaceutical 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.