Correlation Between Long Bon and Kuo Yang

Can any of the company-specific risk be diversified away by investing in both Long Bon and Kuo Yang 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 Long Bon and Kuo Yang into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Long Bon International and Kuo Yang Construction, you can compare the effects of market volatilities on Long Bon and Kuo Yang 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 Long Bon with a short position of Kuo Yang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Long Bon and Kuo Yang.

Diversification Opportunities for Long Bon and Kuo Yang

-0.25

Correlation Coefficient

Long Bon  Kuo Yang

Very good diversification

The 3 months correlation between Long and Kuo is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Long Bon International and Kuo Yang Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kuo Yang Construction and Long Bon 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 Long Bon International are associated (or correlated) with Kuo Yang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kuo Yang Construction has no effect on the direction of Long Bon i.e., Long Bon and Kuo Yang go up and down completely randomly.

Pair Corralation between Long Bon and Kuo Yang

Assuming the 90 days trading horizon Long Bon International is expected to under-perform the Kuo Yang. But the stock apears to be less risky and, when comparing its historical volatility, Long Bon International is 1.47 times less risky than Kuo Yang. The stock trades about -0.47 of its potential returns per unit of risk. The Kuo Yang Construction is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest  2,330  in Kuo Yang Construction on September 26, 2024 and sell it today you would lose (100.00) from holding Kuo Yang Construction or give up 4.29% of portfolio value over 90 days.

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

Long Bon International  vs.  Kuo Yang Construction

Long Bon International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Long Bon International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Long Bon is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Kuo Yang Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kuo Yang Construction has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Kuo Yang 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 Long Bon and Kuo Yang

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

The idea behind Long Bon International and Kuo Yang Construction 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.