Correlation Between Tai Tung and Kuang Hong

Can any of the company-specific risk be diversified away by investing in both Tai Tung and Kuang Hong 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 Tai Tung and Kuang Hong into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tai Tung Communication and Kuang Hong Arts, you can compare the effects of market volatilities on Tai Tung and Kuang Hong 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 Tai Tung with a short position of Kuang Hong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tai Tung and Kuang Hong.

Diversification Opportunities for Tai Tung and Kuang Hong

-0.52

Correlation Coefficient

Tai Tung  Kuang Hong

Excellent diversification

The 3 months correlation between Tai and Kuang is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Tai Tung Communication and Kuang Hong Arts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kuang Hong Arts and Tai Tung 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 Tai Tung Communication are associated (or correlated) with Kuang Hong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kuang Hong Arts has no effect on the direction of Tai Tung i.e., Tai Tung and Kuang Hong go up and down completely randomly.

Pair Corralation between Tai Tung and Kuang Hong

Assuming the 90 days trading horizon Tai Tung Communication is expected to generate 1.41 times more return on investment than Kuang Hong. However, Tai Tung is 1.41 times more volatile than Kuang Hong Arts. It trades about 0.05 of its potential returns per unit of risk. Kuang Hong Arts is currently generating about 0.07 per unit of risk. If you would invest  1,435  in Tai Tung Communication on September 16, 2024 and sell it today you would earn a total of  1,050  from holding Tai Tung Communication or generate 73.17% return on investment over 90 days.

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

Tai Tung Communication  vs.  Kuang Hong Arts

Tai Tung Communication

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tai Tung Communication has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Kuang Hong Arts

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Kuang Hong Arts are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Kuang Hong 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 Tai Tung and Kuang Hong

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

The idea behind Tai Tung Communication and Kuang Hong Arts 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.