Correlation Between Eagle Cold and Kao Fong

Can any of the company-specific risk be diversified away by investing in both Eagle Cold and Kao Fong 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 Eagle Cold and Kao Fong into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Eagle Cold Storage and Kao Fong Machinery, you can compare the effects of market volatilities on Eagle Cold and Kao Fong 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 Eagle Cold with a short position of Kao Fong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eagle Cold and Kao Fong.

Diversification Opportunities for Eagle Cold and Kao Fong

0.26

Correlation Coefficient

Eagle Cold  Kao Fong

Modest diversification

The 3 months correlation between Eagle and Kao is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Cold Storage and Kao Fong Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kao Fong Machinery and Eagle Cold 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 Eagle Cold Storage are associated (or correlated) with Kao Fong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kao Fong Machinery has no effect on the direction of Eagle Cold i.e., Eagle Cold and Kao Fong go up and down completely randomly.

Pair Corralation between Eagle Cold and Kao Fong

Assuming the 90 days trading horizon Eagle Cold is expected to generate 5.6 times less return on investment than Kao Fong. But when comparing it to its historical volatility, Eagle Cold Storage is 2.97 times less risky than Kao Fong. It trades about 0.06 of its potential returns per unit of risk. Kao Fong Machinery is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,061  in Kao Fong Machinery on December 5, 2024 and sell it today you would earn a total of  4,749  from holding Kao Fong Machinery or generate 447.6% return on investment over 90 days.

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

Eagle Cold Storage  vs.  Kao Fong Machinery

Eagle Cold Storage

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eagle Cold Storage are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Eagle Cold is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Kao Fong Machinery

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kao Fong Machinery are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Kao Fong showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eagle Cold and Kao Fong

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

The idea behind Eagle Cold Storage and Kao Fong Machinery 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.