Correlation Between Microsoft and Kao Fong
Can any of the company-specific risk be diversified away by investing in both Microsoft 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 Microsoft and Kao Fong into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Kao Fong Machinery, you can compare the effects of market volatilities on Microsoft 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 Microsoft with a short position of Kao Fong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Kao Fong.
Diversification Opportunities for Microsoft and Kao Fong
Significant diversification
The 3 months correlation between Microsoft and Kao is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft 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 Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Kao Fong go up and down completely randomly.
Pair Corralation between Microsoft and Kao Fong
Given the investment horizon of 90 days Microsoft is expected to generate 69.01 times less return on investment than Kao Fong. But when comparing it to its historical volatility, Microsoft is 3.59 times less risky than Kao Fong. It trades about 0.01 of its potential returns per unit of risk. 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 Together |
| Strength | Insignificant |
| Accuracy | 99.4% |
| Values | Daily Returns |
Microsoft vs. Kao Fong Machinery
Performance |
| Timeline |
| Microsoft |
| Kao Fong Machinery |
Microsoft and Kao Fong Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Kao Fong
The main advantage of trading using opposite Microsoft and Kao Fong positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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