Correlation Between Wah Hong and Kwong Fong

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

By analyzing existing cross correlation between Wah Hong Industrial and Kwong Fong Industries, you can compare the effects of market volatilities on Wah Hong and Kwong 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 Wah Hong with a short position of Kwong Fong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wah Hong and Kwong Fong.

Diversification Opportunities for Wah Hong and Kwong Fong

0.35

Correlation Coefficient

Wah Hong  Kwong Fong

Weak diversification

The 3 months correlation between Wah and Kwong is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Wah Hong Industrial and Kwong Fong Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kwong Fong Industries and Wah Hong 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 Wah Hong Industrial are associated (or correlated) with Kwong Fong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kwong Fong Industries has no effect on the direction of Wah Hong i.e., Wah Hong and Kwong Fong go up and down completely randomly.

Pair Corralation between Wah Hong and Kwong Fong

Assuming the 90 days trading horizon Wah Hong Industrial is expected to generate 1.26 times more return on investment than Kwong Fong. However, Wah Hong is 1.26 times more volatile than Kwong Fong Industries. It trades about 0.06 of its potential returns per unit of risk. Kwong Fong Industries is currently generating about 0.03 per unit of risk. If you would invest  3,465  in Wah Hong Industrial on September 4, 2024 and sell it today you would earn a total of  1,150  from holding Wah Hong Industrial or generate 33.19% return on investment over 90 days.

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

Wah Hong Industrial  vs.  Kwong Fong Industries

Wah Hong Industrial

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Wah Hong Industrial are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Wah Hong showed solid returns over the last few months and may actually be approaching a breakup point.

Kwong Fong Industries

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Kwong Fong Industries are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Kwong Fong 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 Wah Hong and Kwong Fong

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

The idea behind Wah Hong Industrial and Kwong Fong Industries 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.