Correlation Between Kung Sing and Yang Ming

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

By analyzing existing cross correlation between Kung Sing Engineering and Yang Ming Marine, you can compare the effects of market volatilities on Kung Sing and Yang Ming 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 Kung Sing with a short position of Yang Ming. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kung Sing and Yang Ming.

Diversification Opportunities for Kung Sing and Yang Ming

-0.41

Correlation Coefficient

Kung Sing  Yang Ming

Very good diversification

The 3 months correlation between Kung and Yang is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Kung Sing Engineering and Yang Ming Marine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yang Ming Marine and Kung Sing 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 Kung Sing Engineering are associated (or correlated) with Yang Ming. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yang Ming Marine has no effect on the direction of Kung Sing i.e., Kung Sing and Yang Ming go up and down completely randomly.

Pair Corralation between Kung Sing and Yang Ming

Assuming the 90 days trading horizon Kung Sing is expected to generate 1.07 times less return on investment than Yang Ming. But when comparing it to its historical volatility, Kung Sing Engineering is 1.12 times less risky than Yang Ming. It trades about 0.06 of its potential returns per unit of risk. Yang Ming Marine is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  4,838  in Yang Ming Marine on September 12, 2024 and sell it today you would earn a total of  3,212  from holding Yang Ming Marine or generate 66.39% return on investment over 90 days.

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

Kung Sing Engineering  vs.  Yang Ming Marine

Kung Sing Engineering

Risk-Adjusted Performance

0 of 100

Very Weak

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

Yang Ming Marine

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Yang Ming Marine are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Yang Ming showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kung Sing and Yang Ming

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

The idea behind Kung Sing Engineering and Yang Ming Marine 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..