Correlation Between Kawan Food and Alliance Financial

Can any of the company-specific risk be diversified away by investing in both Kawan Food and Alliance Financial 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 Kawan Food and Alliance Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Kawan Food Bhd and Alliance Financial Group, you can compare the effects of market volatilities on Kawan Food and Alliance Financial 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 Kawan Food with a short position of Alliance Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kawan Food and Alliance Financial.

Diversification Opportunities for Kawan Food and Alliance Financial

-0.61

Correlation Coefficient

Kawan Food  Alliance Financial

Excellent diversification

The 3 months correlation between Kawan and Alliance is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Kawan Food Bhd and Alliance Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alliance Financial and Kawan Food 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 Kawan Food Bhd are associated (or correlated) with Alliance Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alliance Financial has no effect on the direction of Kawan Food i.e., Kawan Food and Alliance Financial go up and down completely randomly.

Pair Corralation between Kawan Food and Alliance Financial

Assuming the 90 days trading horizon Kawan Food Bhd is expected to under-perform the Alliance Financial. In addition to that, Kawan Food is 1.28 times more volatile than Alliance Financial Group. It trades about -0.1 of its total potential returns per unit of risk. Alliance Financial Group is currently generating about 0.35 per unit of volatility. If you would invest  470.00  in Alliance Financial Group on October 6, 2024 and sell it today you would earn a total of  30.00  from holding Alliance Financial Group or generate 6.38% return on investment over 90 days.

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

Kawan Food Bhd  vs.  Alliance Financial Group

Kawan Food Bhd

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kawan Food Bhd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Kawan Food is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Alliance Financial

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Financial Group are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Alliance Financial disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kawan Food and Alliance Financial

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

The idea behind Kawan Food Bhd and Alliance Financial Group 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.

Check out your portfolio center.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.