Correlation Between Kao Fong and Dadi Early

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

By analyzing existing cross correlation between Kao Fong Machinery and Dadi Early Childhood Education, you can compare the effects of market volatilities on Kao Fong and Dadi Early 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 Kao Fong with a short position of Dadi Early. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kao Fong and Dadi Early.

Diversification Opportunities for Kao Fong and Dadi Early

-0.26

Correlation Coefficient

Kao Fong  Dadi Early

Very good diversification

The 3 months correlation between Kao and Dadi is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Kao Fong Machinery and Dadi Early Childhood Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dadi Early Childhood and Kao Fong 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 Kao Fong Machinery are associated (or correlated) with Dadi Early. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dadi Early Childhood has no effect on the direction of Kao Fong i.e., Kao Fong and Dadi Early go up and down completely randomly.

Pair Corralation between Kao Fong and Dadi Early

Assuming the 90 days trading horizon Kao Fong Machinery is expected to generate 1.61 times more return on investment than Dadi Early. However, Kao Fong is 1.61 times more volatile than Dadi Early Childhood Education. It trades about 0.11 of its potential returns per unit of risk. Dadi Early Childhood Education is currently generating about -0.11 per unit of risk. If you would invest  992.00  in Kao Fong Machinery on September 14, 2024 and sell it today you would earn a total of  3,618  from holding Kao Fong Machinery or generate 364.72% return on investment over 90 days.

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

Kao Fong Machinery  vs.  Dadi Early Childhood Education

Kao Fong Machinery

Risk-Adjusted Performance

0 of 100

Very Weak

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

Dadi Early Childhood

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dadi Early Childhood Education has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Dadi Early 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 Kao Fong and Dadi Early

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

The idea behind Kao Fong Machinery and Dadi Early Childhood Education 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 Global Correlations module to find global opportunities by holding instruments from different markets.