Correlation Between Kao Fong and I Jang

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

Diversification Opportunities for Kao Fong and I Jang

0.07

Correlation Coefficient

Kao Fong  I Jang

Significant diversification

The 3 months correlation between Kao and 8342 is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Kao Fong Machinery and I Jang Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on I Jang Industrial 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 I Jang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of I Jang Industrial has no effect on the direction of Kao Fong i.e., Kao Fong and I Jang go up and down completely randomly.

Pair Corralation between Kao Fong and I Jang

Assuming the 90 days trading horizon Kao Fong Machinery is expected to generate 4.18 times more return on investment than I Jang. However, Kao Fong is 4.18 times more volatile than I Jang Industrial. It trades about 0.01 of its potential returns per unit of risk. I Jang Industrial is currently generating about 0.0 per unit of risk. If you would invest  5,060  in Kao Fong Machinery on September 19, 2024 and sell it today you would lose (215.00) from holding Kao Fong Machinery or give up 4.25% of portfolio value over 90 days.

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

Kao Fong Machinery  vs.  I Jang Industrial

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.

I Jang Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Kao Fong Machinery and I Jang Industrial 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.