Correlation Between Kao Fong and Galaxy Software

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

Diversification Opportunities for Kao Fong and Galaxy Software

0.23

Correlation Coefficient

Kao Fong  Galaxy Software

Modest diversification

The 3 months correlation between Kao and Galaxy is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Kao Fong Machinery and Galaxy Software Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Galaxy Software Services 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 Galaxy Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Galaxy Software Services has no effect on the direction of Kao Fong i.e., Kao Fong and Galaxy Software go up and down completely randomly.

Pair Corralation between Kao Fong and Galaxy Software

Assuming the 90 days trading horizon Kao Fong Machinery is expected to generate 1.54 times more return on investment than Galaxy Software. However, Kao Fong is 1.54 times more volatile than Galaxy Software Services. It trades about 0.03 of its potential returns per unit of risk. Galaxy Software Services is currently generating about 0.02 per unit of risk. If you would invest  4,560  in Kao Fong Machinery on October 1, 2024 and sell it today you would earn a total of  175.00  from holding Kao Fong Machinery or generate 3.84% 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.  Galaxy Software Services

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 weak basic indicators, Kao Fong may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Galaxy Software Services

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Galaxy Software Services are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Galaxy Software is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Kao Fong and Galaxy Software

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

The idea behind Kao Fong Machinery and Galaxy Software Services 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.