Correlation Between Chia Yi and Kao Fong
Can any of the company-specific risk be diversified away by investing in both Chia Yi 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 Chia Yi and Kao Fong into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chia Yi Steel and Kao Fong Machinery, you can compare the effects of market volatilities on Chia Yi 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 Chia Yi with a short position of Kao Fong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chia Yi and Kao Fong.
Diversification Opportunities for Chia Yi and Kao Fong
Modest diversification
The 3 months correlation between Chia and Kao is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Chia Yi Steel 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 Chia Yi 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 Chia Yi Steel 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 Chia Yi i.e., Chia Yi and Kao Fong go up and down completely randomly.
Pair Corralation between Chia Yi and Kao Fong
Assuming the 90 days trading horizon Chia Yi Steel is expected to under-perform the Kao Fong. But the stock apears to be less risky and, when comparing its historical volatility, Chia Yi Steel is 1.53 times less risky than Kao Fong. The stock trades about -0.01 of its potential returns per unit of risk. The Kao Fong Machinery is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 1,520 in Kao Fong Machinery on November 3, 2024 and sell it today you would earn a total of 2,595 from holding Kao Fong Machinery or generate 170.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Chia Yi Steel vs. Kao Fong Machinery
Performance |
| Timeline |
| Chia Yi Steel |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Insignificant
| Kao Fong Machinery |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Weak
Chia Yi and Kao Fong Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chia Yi and Kao Fong
The main advantage of trading using opposite Chia Yi and Kao Fong positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chia Yi 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 Chia Yi Steel 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
Other Complementary Tools
| Sign In To Macroaxis Sign in to explore Macroaxis' wealth optimization platform and fintech modules | |
| Portfolio File Import Quickly import all of your third-party portfolios from your local drive in csv format | |
| Efficient Frontier Plot and analyze your portfolio and positions against risk-return landscape of the market. | |
| Analyst Advice Analyst recommendations and target price estimates broken down by several categories | |
| Idea Breakdown Analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes |