Correlation Between Kao Fong and Te Chang

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

Diversification Opportunities for Kao Fong and Te Chang

-0.18

Correlation Coefficient

Kao Fong  Te Chang

Good diversification

The 3 months correlation between Kao and 5511 is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Kao Fong Machinery and Te Chang Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Te Chang Construction 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 Te Chang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Te Chang Construction has no effect on the direction of Kao Fong i.e., Kao Fong and Te Chang go up and down completely randomly.

Pair Corralation between Kao Fong and Te Chang

Assuming the 90 days trading horizon Kao Fong Machinery is expected to generate 8.1 times more return on investment than Te Chang. However, Kao Fong is 8.1 times more volatile than Te Chang Construction. It trades about 0.15 of its potential returns per unit of risk. Te Chang Construction is currently generating about 0.07 per unit of risk. If you would invest  4,130  in Kao Fong Machinery on September 20, 2024 and sell it today you would earn a total of  595.00  from holding Kao Fong Machinery or generate 14.41% 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.  Te Chang Construction

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.

Te Chang Construction

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Te Chang Construction are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Te Chang may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Kao Fong and Te Chang

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

The idea behind Kao Fong Machinery and Te Chang Construction 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..