Correlation Between Kao Fong and Shanghai Commercial

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

Diversification Opportunities for Kao Fong and Shanghai Commercial

0.3

Correlation Coefficient

Kao Fong  Shanghai Commercial

Weak diversification

The 3 months correlation between Kao and Shanghai is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Kao Fong Machinery and Shanghai Commercial Savings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Commercial 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 Shanghai Commercial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Commercial has no effect on the direction of Kao Fong i.e., Kao Fong and Shanghai Commercial go up and down completely randomly.

Pair Corralation between Kao Fong and Shanghai Commercial

Assuming the 90 days trading horizon Kao Fong Machinery is expected to generate 3.21 times more return on investment than Shanghai Commercial. However, Kao Fong is 3.21 times more volatile than Shanghai Commercial Savings. It trades about 0.11 of its potential returns per unit of risk. Shanghai Commercial Savings is currently generating about 0.0 per unit of risk. If you would invest  1,085  in Kao Fong Machinery on December 4, 2024 and sell it today you would earn a total of  4,725  from holding Kao Fong Machinery or generate 435.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.79%
Values	Daily Returns

Kao Fong Machinery  vs.  Shanghai Commercial Savings

Kao Fong Machinery

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kao Fong Machinery are ranked lower than 8 (%) 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.

Shanghai Commercial

Risk-Adjusted Performance

Good

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

Pair Trading with Kao Fong and Shanghai Commercial

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

The idea behind Kao Fong Machinery and Shanghai Commercial Savings 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.