Correlation Between Kang Yong and Hwa Fong

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

By analyzing existing cross correlation between Kang Yong Electric and Hwa Fong Rubber, you can compare the effects of market volatilities on Kang Yong and Hwa 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 Kang Yong with a short position of Hwa Fong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kang Yong and Hwa Fong.

Diversification Opportunities for Kang Yong and Hwa Fong

0.97

Correlation Coefficient

Kang Yong  Hwa Fong

Almost no diversification

The 3 months correlation between Kang and Hwa is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Kang Yong Electric and Hwa Fong Rubber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hwa Fong Rubber and Kang Yong 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 Kang Yong Electric are associated (or correlated) with Hwa Fong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hwa Fong Rubber has no effect on the direction of Kang Yong i.e., Kang Yong and Hwa Fong go up and down completely randomly.

Pair Corralation between Kang Yong and Hwa Fong

Assuming the 90 days trading horizon Kang Yong Electric is expected to generate 0.23 times more return on investment than Hwa Fong. However, Kang Yong Electric is 4.4 times less risky than Hwa Fong. It trades about -0.27 of its potential returns per unit of risk. Hwa Fong Rubber is currently generating about -0.25 per unit of risk. If you would invest  29,200  in Kang Yong Electric on September 3, 2024 and sell it today you would lose (500.00) from holding Kang Yong Electric or give up 1.71% of portfolio value over 90 days.

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

Kang Yong Electric  vs.  Hwa Fong Rubber

Kang Yong Electric

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kang Yong Electric are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting technical and fundamental indicators, Kang Yong disclosed solid returns over the last few months and may actually be approaching a breakup point.

Hwa Fong Rubber

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hwa Fong Rubber are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Hwa Fong disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kang Yong and Hwa Fong

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

The idea behind Kang Yong Electric and Hwa Fong Rubber 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.