Correlation Between Kao Fong and Yeou Yih

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

Diversification Opportunities for Kao Fong and Yeou Yih

0.74

Correlation Coefficient

Kao Fong  Yeou Yih

Poor diversification

The 3 months correlation between Kao and Yeou is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Kao Fong Machinery and Yeou Yih Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yeou Yih Steel 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 Yeou Yih. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yeou Yih Steel has no effect on the direction of Kao Fong i.e., Kao Fong and Yeou Yih go up and down completely randomly.

Pair Corralation between Kao Fong and Yeou Yih

Assuming the 90 days trading horizon Kao Fong Machinery is expected to generate 2.02 times more return on investment than Yeou Yih. However, Kao Fong is 2.02 times more volatile than Yeou Yih Steel. It trades about 0.02 of its potential returns per unit of risk. Yeou Yih Steel is currently generating about 0.04 per unit of risk. If you would invest  4,900  in Kao Fong Machinery on December 22, 2024 and sell it today you would earn a total of  25.00  from holding Kao Fong Machinery or generate 0.51% return on investment over 90 days.

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

Kao Fong Machinery  vs.  Yeou Yih Steel

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 1 (%) of all global equities and portfolios over the last 90 days. 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.

Yeou Yih Steel

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Yeou Yih Steel are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Yeou Yih 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 Yeou Yih

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

The idea behind Kao Fong Machinery and Yeou Yih Steel 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.