Correlation Between Kao Fong and Cheng Mei

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

Diversification Opportunities for Kao Fong and Cheng Mei

0.35

Correlation Coefficient

Kao Fong  Cheng Mei

Weak diversification

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

Pair Corralation between Kao Fong and Cheng Mei

Assuming the 90 days trading horizon Kao Fong is expected to generate 1.12 times less return on investment than Cheng Mei. In addition to that, Kao Fong is 3.44 times more volatile than Cheng Mei Materials. It trades about 0.03 of its total potential returns per unit of risk. Cheng Mei Materials is currently generating about 0.11 per unit of volatility. If you would invest  1,310  in Cheng Mei Materials on December 21, 2024 and sell it today you would earn a total of  90.00  from holding Cheng Mei Materials or generate 6.87% 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.  Cheng Mei Materials

Kao Fong Machinery

Risk-Adjusted Performance

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 April 2025.

Cheng Mei Materials

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cheng Mei Materials are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Cheng Mei may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Kao Fong and Cheng Mei

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

The idea behind Kao Fong Machinery and Cheng Mei Materials 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.