Correlation Between China Steel and Kao Fong
Can any of the company-specific risk be diversified away by investing in both China Steel 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 China Steel and Kao Fong into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Steel Corp and Kao Fong Machinery, you can compare the effects of market volatilities on China Steel 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 China Steel with a short position of Kao Fong. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Steel and Kao Fong.
Diversification Opportunities for China Steel and Kao Fong
-0.5 | Correlation Coefficient |
Very good diversification
The 3 months correlation between China and Kao is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Corp 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 China Steel 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 China Steel Corp 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 China Steel i.e., China Steel and Kao Fong go up and down completely randomly.
Pair Corralation between China Steel and Kao Fong
Assuming the 90 days trading horizon China Steel Corp is expected to under-perform the Kao Fong. But the stock apears to be less risky and, when comparing its historical volatility, China Steel Corp is 3.6 times less risky than Kao Fong. The stock trades about -0.07 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 1,800 in Kao Fong Machinery on September 3, 2024 and sell it today you would earn a total of 2,985 from holding Kao Fong Machinery or generate 165.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Steel Corp vs. Kao Fong Machinery
Performance |
| Timeline |
| China Steel Corp |
| Kao Fong Machinery |
China Steel and Kao Fong Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Steel and Kao Fong
The main advantage of trading using opposite China Steel and Kao Fong positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Steel 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.| China Steel vs. Formosa Plastics Corp | China Steel vs. Chunghwa Telecom Co | China Steel vs. Nan Ya Plastics | China Steel vs. Cathay Financial Holding |
| Kao Fong vs. Airtac International Group | Kao Fong vs. TECO Electric Machinery | Kao Fong vs. Chung Hsin Electric Machinery | Kao Fong vs. Ruentex Development Co |
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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