Correlation Between Ching Feng and Kao Fong

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

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

Diversification Opportunities for Ching Feng and Kao Fong

-0.16

Correlation Coefficient

Ching Feng  Kao Fong

Good diversification

The 3 months correlation between Ching and Kao is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Ching Feng Home 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 Ching Feng 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 Ching Feng Home 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 Ching Feng i.e., Ching Feng and Kao Fong go up and down completely randomly.

Pair Corralation between Ching Feng and Kao Fong

Assuming the 90 days trading horizon Ching Feng Home is expected to under-perform the Kao Fong. But the stock apears to be less risky and, when comparing its historical volatility, Ching Feng Home is 3.31 times less risky than Kao Fong. The stock trades about -0.33 of its potential returns per unit of risk. The Kao Fong Machinery is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  4,130  in Kao Fong Machinery on September 20, 2024 and sell it today you would earn a total of  595.00  from holding Kao Fong Machinery or generate 14.41% return on investment over 90 days.

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

Ching Feng Home  vs.  Kao Fong Machinery

Ching Feng Home

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ching Feng Home has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

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.

Pair Trading with Ching Feng and Kao Fong

The main advantage of trading using opposite Ching Feng and Kao Fong positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ching Feng 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 Ching Feng Home 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.

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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.